Jul 30, 2019
Operator
Good day ladies and gentlemen and welcome to the Maxim Integrated Fourth Quarter of Fiscal 2019 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 fourth quarter 2019 earnings conference call.
Joining me on the call today are and Chief Executive Officer, Tunc Doluca; and Chief Financial Officer, Bruce Kiddoo. As part of our usual process, we have posted a supplemental financial presentation into 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 conference call, we will be making some forward-looking statements.
In light of the Private Securities Litigation Reform Act, I'd like to remind you that these statements must be considered in conjunction with the cautionary warnings that appear in our SEC filings. Investors are cautioned that all forward-looking statements in this call involve risks and uncertainty and that future events may differ materially from the statements made.
For additional information, please refer to the company's Securities and Exchange Commission filings which are posted on our website. Now, I'll turn the call over to Tunc.
Tunc Doluca
Thank you, Kathy. Good afternoon to all participants and thank you for joining us today.
We appreciate your interest in Maxim Integrated. If we were to last quarter's results and our outlook, our June quarter results met our expectations, while reduced both internal and distribution channel inventory.
Given the soft environment, we will continue to tightly manage inventory and spending in the September quarter. Today, we announced a 4% increase in our dividend reflecting our continued commitment to return cash to shareholders and confidence in our long-term [technical difficulty].
Let me now provide more detail on June results and current quarter outlook. As a reminder, our historic seasonality from the June to September quarter has been flat revenue.
However, this year, we accept your September to be lower than seasonal due to lower revenue from Samsung, Huawei, and battery management system customers. I'll next provide color by end market and I will start with Automotive.
In the June quarter, our Automotive business was up 2% from the same quarter last year despite a significant year-over-year decline in global car production. This decline impacted our infotainment and auto body electronics businesses and was offset by strength in battery management system products for electric vehicles and growth in driver assistance revenue.
In the September quarter, we anticipate a slow quarter driven by an expected soft environment for Automotive production units. In battery management systems for electric vehicles, we are forecasting lower shipments given the market uncertainty in China due to changing subsidies and lower auto demands from consumers.
However, we still anticipate year-over-year growth -- revenue growth in electric vehicles BMS products in the September quarter. Looking forward, we have a growing pipeline of design wins in serial link products for parking assistance.
Over the last few years, we have won surround view sockets at nine Chinese OEMs, some of whom have started production with our products. In China, we also have design-win traction for our next-generation serial link products that enable high-resolution displays and camera systems.
The first of these customers have started receiving production shipments of these serial link products. Additionally, for Automotive lighting, we are introducing new products with LED-adaptive lighting application as well as driver monitoring systems.
Maxim's products are driving monitoring work with our serial link technology for ADAS application that comply with the highest automotive safety integrity levels. These new LED lighting products are currently in initial production and are expected to reach volume production in the next few years.
Fiscal 2019 was a record year for Automotive design wins. During the fiscal year, we won close to $1.1 billion in our pipeline of new design wins which was up 26% from the prior fiscal year.
Let me next turn to the Industrial market. In the June quarter, Industrial was down 20% from the same quarter last year, reflecting a soft demand environment.
Within distribution, global resales were seasonally up. In the September quarter, we expect continued seasonality in Industrial and roughly flat sequential resales and distribution with the overall business at a significantly lower level the last year.
We will remain disciplined with channel inventory as we maintain inventory days around our target of 60. Bruce will provide further details on the distribution business right after me.
Let me next discuss Communications & Data Center. In the June quarter, Comms & Data Center was down 23% from the same quarter of last year.
As we expected, we saw lower demand for 100G laser driver products for optical modules used in hyper-scale intra-data center applications. Year-on-year revenues also declined in a broad-based of building block products.
In the September quarter, we anticipate Comms & Data Center revenue to be down sequentially with strong growth in 100G laser driver shipments offset by declines at Huawei and weakness in a broad base of building block products. Our customers are indicating that their excess inventory of 100G laser drivers and modules has been reduced and we are starting to see customers placing orders for our products.
Finally, let me turn to Consumer. In the June quarter, Consumer was down 7% from the same quarter of last year.
That weakness in smartphones, partially offset by growth wearables and peripherals. Smartphones comprise less than half of our Consumer business in the quarter.
Going forward we expect Samsung Consumer revenue to decline from approximately 10% of our total revenue in the fiscal 2019 to a mid-single-digit percentage of total revenue in fiscal 2020 due to lower content and unit shipments. In the September quarter, Samsung revenue is expected to decline over 50% from the same quarter of last year.
Despite the head -- the smartphone headwind, we expect Consumer to be up sequentially due to growth in our broad-based Consumer business in gaming, peripherals, wearables and tablets. To summarize, we have built Maxim to be successful in any environment including the current downturn and to position the company to outperform in the next market upturn.
We are growing our content and new design – and new design wins in long product life cycle end market such as Automotive and Industrial. Our analog business model and flexible manufacturing strategy enables are consistent company profitability and stability.
All of this results in a strong predictable free cash flow. This enables us to increase our dividend again, this year as we have consistently done each year for the last decade.
About an hour ago, we released the announcement that Brian White will be our next Chief Financial Officer. So this will likely be our last earnings report with Bruce on the call.
I want to make to recognize Bruce's contributions to me and to Maxim. I feel very fortunate to have had Bruce at my side as a trusted partner for over 11 years.
He's been instrumental in driving many of our initiatives and together we've structurally improve Maxim for strong performance over the long-term. In addition to the benefits of a Bruce's financial acumen, he is consistently delivered on the operational front, while looking out for the best interest of employees.
I would also like to thank our shareholders and the investment community for their support as we make this important transition. Now, I'll turn the call over to Bruce, one last time.
Bruce Kiddoo
Thanks, Tunc much appreciate. And thank you to everyone on the call today.
I'm very pleased to welcome Brian White to the Maxim team. As announced today, he will join Maxim on August 12 and become CFO after we file our 10-K.
Brian successful run as CFO of IDT and 30-years of industry experience make him uniquely qualified to lead Maxim going forward. Turning to our results, revenue for Q4 was $557 million in line with expectations, up 3% sequentially and down 12% from the same quarter a year ago.
While this is clearly a soft demand Maxim has built to perform any environment. Our trailing 12-month free cash flow was $793 million, and was 34% of trailing 12-month period.
In fiscal 2019, we exceeded our commitment to return 125% of free cash flow to shareholders. Today, we announce that we will increase our dividend by 4% despite the soft business environment.
In fiscal 2020, we plan to again return 125% or more of free cash flow through dividends and share repurchases. Our revenue mix by major markets in Q4 was approximately 29% Industrial, 25% Automotive, 25% Consumer, 17% com and data center, and 4% computing.
Our Industrial and Automotive businesses comprised 54% of our revenue in the quarter. Starting in Q1 – starting in our Q1 earnings report we'll be using an automated system to map revenue to end markets.
As most of you know end market mapping can be a challenge in our industry given that we have thousands of products and thousands of customers. This updated mapping will result in some changes to our revenue breakout by end market starting next quarter.
However, as we looked at sequential trends from Q4 to Q1 in both the current and the new system today's guidance is the same regardless of the system use. As an aid for investment, when we make this change, we will provide four quarters of history.
However, for the time being all of today's commentary references the existing mapping. Also, because the Computing segment is small and is not in R&D focus area for Maxim, next quarter we will be combining Computing with the Communications and Data Center segment, enabling us to combine PCs and peripherals into the same category as servers.
Let me now turn to the distribution channel. Distribution comprised 50% of Maxim's revenue in Q4.
I am pleased to announce that we ended the quarter with 59 days of inventory in the channel, down from 64 days in the prior quarter. Channel inventory dollars were flat from their prior quarter, while resales were up 8% sequentially.
This inventory performance demonstrates our commitment of closely manage inventories in distribution channel and partner with the distributors to maximize performance in the current uncertain environment. We are committed to maintain our current channel inventory around 60 days.
Turning to the P&L. Maxim's gross margin, excluding special items, was 64.8%, up 100 basis points from the prior quarter, with increased driven by higher revenue and lower inventory reserves.
Operating expenses, excluding special items, were $180 million, down from the prior quarter and below our guidance, reflecting tight cost controls. Q4 GAAP operating income, excluding special items, was $180 million.
Operating margin was 32% of revenue, up from the prior quarter, due to higher gross margin. Q4 GAAP tax rate, excluding special items, was 14%.
GAAP earnings per share, excluding special items, was $0.57 in line with expectations. Turning to the balance sheet and cash flow.
Overall, total cash, cash equivalents and short-term investments were $1.9 billion, flat with the prior quarter. Q4 inventory days ended at 114, down 12 days from Q3 and inventory dollars were down 10% from the prior quarter.
Capital expenditures were $31 million in the quarter. Trailing 12-month free cash flow was $793 million or 34% of revenue, which is down 15% year-over-year on an adjusted basis or up 5% on an unadjusted basis.
Adjusted fiscal 2018 free cash flow excludes the one-time tax payment of $178 million in Q4 2018. Our free cash flow per share was $2.87.
Our free cash flow yield is 4.4% at yesterday's closing stock price. For capital return, share repurchases are $102 million in Q4 as we bought back approximately 1.8 million shares.
Dividends totaled $125 million in the quarter, based on yesterday's closing stock price and our increased dividend of $0.48 per share, our dividend yield is 3%. Our beginning Q1 backlog was $391 million,, based on this beginning backlog and expected turns, we forecast Q4 revenue of $510 million to $550 million.
Q1 gross margin, excluding special items, is forecasted at $63 million to 65%, down from Q4 due to lower revenue and lower utilization of our internal fab as we perform facility upgrades. Q1 operating expenses, excluding special items, are expected to be in the low $180 million due to continued tight cost controls.
Our tax rate for Q1, excluding special items, is expected to be 14%, flat with the prior quarter. For Q1 GAAP earnings per share excluding special items, we expect a range of $0.46 to $0.52.
For FY 2020, we expect capital expenditures to be down from the prior year near the midpoint of our targeted range of 1% to 3% of revenue as we complete facility upgrades at our internal fab. We returned 132% of free cash flows in 2019.
In fiscal 2020, we again plan to return 125% or more of free cash flow to investors. In summary, given the current environment, we are tightly managing spending and inventory, both internally and in the channel.
We continue to invest in our long-term secular growth drivers of Automotive, Industrial, and Data Center. Our financial model enables us to generate strong consistent cash flow in any environment as evidenced by our commitment to return 125% or more of free cash flow to investors and the increase in our dividend announced today.
And finally, as this is my last earnings conference call, I want to thank all our investors and sell-side analysts for their support over my nearly 12 years at Maxim. It has been a great honor to be part of the Maxim team.
I am proud of our many accomplishments as we transform Maxim. At Maxim, we truly make a difference for our customers, our shareholders, our employees, and the communities where we operate.
I'm highly confident that Tunc, Brian, and the 7,000 Maxim employees will continue to maximize value for all our stakeholders. Thank you.
And with that I'll turn the call back over to Kathy.
Kathy Ta
Thanks Bruce. That concludes our prepared remarks and we will now open the call for questions.
We’d like to continue the same Q&A process that we’ve used in previous calls. We’ll take one question from each caller, so we can get to as many people as possible.
Jonathan could we please have our first question?
Operator
Certainly. [Operator Instructions] Our first question comes from the line of Ross Seymore from Deutsche Bank.
Your question please.
Ross Seymore
Okay. Thanks for letting me ask the question and before I do that just wanted to say that congrats and good bye Bruce.
It's been a pleasure working with you. So, for Tunc and/or Bruce, just wanted to talk about the general environment.
Last quarter stabilization was kind of a word that was used on your call. And it seems like things have taken another step down.
So, whether you want to split into the various end markets or just an aggregate, can you just talk about what changed from one quarter to next? Is just the China trade, is it Huawei?
If you want to size that or there are other dynamic that we should appreciate?
Tunc Doluca
So, Ross I'll take that one and Bruce can add if he wishes. So, we did say that the demand seems to stabilize.
We didn't say there was a rebound last time. The demand has stabilized at a lower level than it used to.
And it remain soft across all end markets. Basically what we have said that we kind of saw seasonal patterns.
And except for a few exceptions that I'm going to mention things do still look seasonal. So, if you break it down by market, Industrial is seasonal from fiscal Q4 to Q1, so -- but there is no rebound frankly.
Automotive was up in Q4, but down more than seasonal in Q1 and this is being impacted a lot by the BMS uncertainty that I talked about in my prepared remarks. Customers are starting to order again in datacenter optical, so that's going to help out.
But the comps infrastructure and there's broad-based weakness on the communication side and this impacted a lot by Huawei. So in essence on Huawei, we have – for most of our products, we actually are able to ship, but Huawei is kind of realigning their demand.
And we don't really have good visibility from a backlog standpoint as to what they want. So to be on the safe side, we've basically taken their forecast way down.
And that means they're kind of roughly having an effect about $10 million or so in the quarter. And in Consumer's, our broad market business is up strongly which is good and tablets, wearables and gaming.
But this is offset by lower content in Samsung phones. So those three effects combined, which were just to remind you again BMS uncertainty, Huawei uncertainty, and the Samsung content and unit reduction may contribute about $30 million or so.
So that's the biggest weakness that you are seeing. But the rest of it is kind of seasonal, kind of pretty similar to what we've said in the previous quarter.
Hope that gave you some color and Bruce I don't know if you want to add anything.
Bruce Kiddoo
No. I just think you said well Tunc.
I'll just add three- year seasonality for the September quarter it's flat. And it's actually really pretty consistent there.
So we would've started at about 560 it has been normal. And then there's kind of the $30 million a third, a third, a third that Tunc just outline.
That really kind of put us where we are at today.
Ross Seymore
Thanks for the help.
Bruce Kiddoo
Yes.
Kathy Ta
Thank you, Ross.
Ross Seymore
Thank you.
Operator
Thank you. Our next question comes from the line of Harlan Sur from JPMorgan.
Your question please.
Harlan Sur
Good afternoon. Thanks for taking my questions, Bruce thank you very much for all your support over the years and I wish well in retirement.
The follow-up on the last question, maybe just more specifically in Industrial it looks like in the June quarter Industrial didn't grow strongly as the anticipated. And I know you are guiding Industrial down again sequentially in the December quarter kind of seasonal, but that seems to be off over June quarter that was a bit weaker than expected.
So can you just help us understand maybe a little bit more in detail what happened from back in late April when factory automation trends are picking up, you were seen broad recovery across some of the geographies, I think even your SMB catalog business was seen some good demand trends as well. So maybe you can just provider us a bit more color on what happened as the quarter progressed?
Tunc Doluca
Yes. So when we look at our Industrial business – and you're right we guided Industrial up strongly in the June quarter.
And we had talked about a lot of that had been off of kind of week March, where we kind of took our medicine and bringing down our dusty channel inventory. So Industrial was up sequentially in line with probably similar or normal seasonality for the June quarter.
But it wasn't up strongly, so it did come in a little bit weaker, as we saw the overall business. And clearly, our order patterns have stabilized, but we haven't really seen a pickup in Industrial.
As similar to what we did in the March quarter, we brought channel inventory down again right this time from 64 days down to 59. So, and you saw basically resales were up 8% and recap inventories in the channel a flat.
So, basically, we are under-shipping demand in order aggressively get our channel inventory down. So, I think it's just a combination of we haven't seen any form of kind of rebound in Industrial.
We haven't seen it really getting weaker. But this combination of sort of flat order flow at a lower level combined with managing channel inventory really kind of resulted in -- its coming a little bit lighter than we thought.
When we look at the September quarter again we're seeing it down -- but in line with normal seasonality actually nothing unusual there. But challenge of course is it's offset much lower base and I think we are looking for when that's balance going to bounce back.
And I think we haven't seen that yet.
Harlan Sur
Thank you.
Tunc Doluca
Yes, we haven't seen it yet. Let me add a little bit.
We haven't seen that yet. We've told few customers to see how they're doing on their inventory levels.
And some of them are -- there's saying they are working down inventory by the way and they expect that those inventory reductions to kind of get back to normal levels sometime in the late second half of the year. That's not a broad survey.
That's a few customers we ask. But that's the answer that we got.
Harlan Sur
Great. Thank you.
Kathy Ta
Thank you, Harlan.
Operator
Thank you. Our next question comes from the line of Ambrish Srivastava from BMO.
Your question please.
Ambrish Srivastava
Hi, thank you very much. Bruce, thanks been a pleasure.
Wish you all the best and you're leaving behind big shoes to fill here. For my question I wanted to go into factory loadings and maybe I missed it last quarter.
What is this facility upgrade? And what's the impact of that on margins?
And how should we think about -- what's the playbook now? Are you reducing loadings further as you look out -- looks like it definitely more prolonged downturn than you might have been thinking 90 days ago?
Thank you.
Bruce Kiddoo
Yes. So, we had -- if you look at our CapEx, we came in above our 1% to 2% motto.
I think we came in -- I think it was round about 3.6% CapEx as a percent of revenue. And we had identified that we were making some uptake to our loan remaining quiz, to the electrical systems, to the water systems.
And so we were spending that money in FY 2019 to do that. We've completed the bulk of that work, we got it down kind of on-schedule.
And during the kind of July 4th time period, in essence, we shut the fab down for two weeks. And that really lowered our moves in the fab by about 15% during that time period.
And so that certainly had an impact, I think it may be 20, 30 bps. So that's just -- one of the reason certainly that's causing us not to be quite as strong as we have before.
Obviously, the lower revenue in our desired -- you saw just overall in addition to the fab shutdown, you saw that in the June quarter, right, we took overall inventory down by 12 days, right, from 126 down to 114. So, again, that -- just us setting ourselves up for as things come back, we're going to have lean inventory, we're not going to have to -- we're going to be able to see the immediate benefits as revenue comes back from a margin point of view.
Ambrish Srivastava
Okay. Thank you.
Operator
Thank you. Our next question comes from the line of Vivek Arya from BMO -- BoFA.
Your question please.
Unidentified Analyst
No problem. This is Jamie [Indiscernible] on for Vivek.
Thanks for letting me ask the question. Could you talk a little bit about the competitive environment in the BMS market?
Do you see increase competition in that market? And is the weakness in the September quarter due also to this macro softness that you're seeing or going to be more competitive positioning?
Thanks.
Tunc Doluca
Yes. So I’ll comment about that.
This is Tunc. So first of all BMS is part of the automotive market, whereas market share changes relatively slowly, so you don't really see it in one or two quarters.
The -- we've grown the BMS business significantly over the -- I don't know, if you recall, but last -- in the second half of last year we were talking about year-over-year growth rates that were 50% to 75% which is huge. What's changed now is the fact that there's been a change in the way to subsidies are paid out in China.
And we think that, that will have a may be dampening of sale of the cars and taking that into consideration, we reduced our forecast for that market. Now having said that, number one we're still growing in the mid-20s year-over-year.
I would still a call that pretty healthy growth, even though we're seeing this quarter-over-quarter deceleration. And the second part of that is, overall the subsidies will have an effect, but the Chinese government still has their policy or their objective just to grow electric vehicles from about 1.1 million couple of years ago to almost 2 million in the next couple of years.
So I think the matters going to be healthy, we just didn’t know how to forecast what was going to happen on consumer behavior. In terms of competitiveness, I think we have a strong product portfolio.
The products are very robust and in terms of ASIL-D or safety requirements that our customers like that, plus the fact we have tremendous history with the products they have been used for years by our customers which means that there's less risk from our customers standpoint. So this is -- I hopefully I gave some color on, what it is that cause us to essentially forecast BMS revenue to be down quarter-over-quarter.
As I said before, it's still up mid 20% year-over-year. Hopefully that helps?
Kathy Ta
Thank you, Jamie.
Operator
Thank you. Our next question comes from the line of Craig Hettenbach from Morgan Stanley.
Your question please.
Craig Hettenbach
Yes, thank you. A question on the Industrial market, understanding that it's weak demand and inventories coming down, but just more so from a design perspective are you seeing customers pause all in terms of how they look at new design opportunities?
If you give any color on that?
Tunc Doluca
We -- you're talking about the design win activity? Is that you're asking about that I assume?
No, we are not seen that. Things are as robust as they've ever been in terms of them looking for products that help them build more productive factories.
So that really has not changed. The level of interest in our communications products and our high efficiency small power supply products that's very robust and customers are asking us for more advanced parts frankly and helping us to find new generation products as well.
So despite the fact that there's slowdown that we're observing the design of new generation of factory automation products that our customers continues to be very robust.
Craig Hettenbach
Got it. Thank you.
Kathy Ta
Thank you Craig.
Operator
Thank you. Our next question comes from the line of Blayne Curtis from Barclays.
Your question please.
Tom O'Malley
Hey guys this is Tom O'Malley on for Blayne Curtis and I just wanted to echo the sentiment from others, and thank Bruce. But -- my question here is on December.
Moving forward I know there's not much visibility in the market right now. But can you kind of do your best to quantify what you think is normal seasonal for December?
And just any color you have on the moving pieces there, just to better give us a feel of how you guys are viewing the end of the year -- calendar year?
Bruce Kiddoo
Yes. And so I think we all know this isn't a normal time period right now.
And so from that point of view, but just -- at the highest level by the end market, looking back historically usually consumer is seasonally down after a strong September. And we're seeing certainly a good September take out, Samsung and our broad-based business is doing very well.
Industrial is usually seasonally flat. And again we've talked about Industrial business is were waiting is very stable, but we haven't seen the rebound yet.
Automotive is usually seasonally up as people start shipping in advance. And then, of course, Comms & Data Center is not seasonal.
And that's going to be depended on what's happening -- this rebound or start off reordering on the data center continue. And then, of course, what happens with Huawei would be the other open question that we have.
So if you think about some of the several items that we called out this quarter, I think also all those are going to be open questions for December as well.
Tom O'Malley
Thanks.
Kathy Ta
Thank you, Tom.
Operator
Thank you. Our next question comes from the line of John Pitzer from Credit Suisse.
Your question please.
John Pitzer
Yes good afternoon, guys. Thanks for letting me asking the question.
Bruce thank you for all the help through the years and enjoy the retirement. I guess, my question going back to the consumer market and the smartphone market in general, I guess despite really good efforts that diversify away from smartphones in that bucket and the largest customer Samsung, it still feels like that's a headwind.
So I'm kind of curious from here, philosophically is that the market and a customer that you still think is important to support while going forward? Or help us understand can you reallocate resources or take further cost out of the model as you continue to try to deemphasize that part of the business?
Tunc Doluca
Well, from an -- okay so your questions are more about our R&D investment. I mean in essence at -- that one large customer, we've got sockets where we add value and our customer cares about it.
The level of investment that's required on this -- we have some big programs, it's not very high, our resources, our R&D investment really has been mostly in product lines that are more general-purpose and diversify to all the markets that we talk about hearables and variables and peripherals and gaming and so on. So, a lot of the shifts have already occurred in terms of R&D investment.
So, what we really look at John is to see what return investment is going to be. We have a bar that's higher for short-lived products in terms of returns than our other product areas.
So, really we don't see a need to really make some major investment changes in terms of research and development. And most of our investments of been in other areas Consumer for a while now.
So, I think the changes may be you're suggesting are kind of behind this already in terms of what we've done in the past year or so.
Bruce Kiddoo
Yes. And John just to put some numbers to that on the business side.
I mean in Q4, right, basically Consumer was flat. But we had obviously smartphone and Samsung down significantly while our broad market businesses gaming, wearable, tablets was up 30% quarter-over-quarter.
So, we did see some of strong growth there. And when we look at the September quarter, again, we're seeing sort of our Consumer business ex-Samsung up 15% sequentially.
So, we are seeing -- and again, it seems that we made that shift in R&D and focus several years ago and we're seeing that benefit. Obviously, as we've kind of taken this step from Samsung being a -- kind of a -- call it roughly a 10% customers down to a mid-single-digit, you see that that one step down.
But I think the strategy to move to broad based Consumer that's -- it's working very effectively as we are able to continue to compete Consumer flat and sequentially in June and still grow it September despite the significant takedown from Samsung.
John Pitzer
Thanks guys.
Bruce Kiddoo
Yes.
Kathy Ta
Thank you, John.
Operator
Thank you. Our next question comes from the line of Matt Ramsay from Cowen.
Your question please.
Josh Buchalter
Hi, this is Josh Buchalter on behalf of Matt. Thanks for taking my question and let me echo my congrats to Bruce and best of luck to Brian.
So, I guess despite the revenue softness, your gross margins have held up comparatively well compared to past cycles. I was hoping you could talk about some of the measures you've taken here?
And how your fab-like model plays into this? And also assuming that we're now shipping closer to end demand, you should -- current levels represent roughly the bottom.
Thank you.
Bruce Kiddoo
Yes. So, I think if you look at gross margin and part of our transformation was -- we really went from a company that when I joined almost 12 years ago, we were about 85%, 90% internal fab-sourced and today, we are about 25%.
So, we really shifted to much more variable model. And kind of one of the ways that we've tried to capture this is, 10 years ago when the recession and we were this kind of 85% internal, for a 10% drop in revenue, we probably would have lost about five points of gross margin.
Today with the, kind of, the outsourced model for that same 10% drop in revenue, we lose about one to two points of gross margin from utilization. And if we kind of test that against our results here, actually the model is holding up.
We're on the high end of the range of the 1% to 2%, but part of that is just simply because we're also trying to reduce DOI at the same time, right, and so we're starting wafers low demand. And then we've seen little bit -- the other element is we've seen a little bit higher inventory reserve on a year-over-year basis, again, because of the slowdown.
But we still feel very confident in our gross margin story. We think we can get back to our range of 67% to 70%.
We think get back there something little bit over $600 million and feel good about that. And we believe that the growth drivers or the tailwinds for our gross margin are still absolutely in place, right, whether that's continuing to drive put more wafers through our long fab up in Oregon, whether that's through kind of been able to kind of -- for the rest of our foundry network, kind of, optimize that for the lowest cost, the move to distribution and to SMB and the favorable pricing environment.
All those tailwinds are still in place and we still feel very good -- and just the fact that we're able -- in sort of the current environment, we are still at 64%, 65%, feels very good to us and it's been a good stress test for the model and we're looking forward to moving that gross margin backup as revenue inevitably returns.
Josh Buchalter
Thank you.
Kathy Ta
Thank you, Josh.
Operator
Thank you. Our next question comes from the line of Tore Svanberg from Stifel.
Your question please.
Tore Svanberg
Yes, thank you. Welcome to Brian and congratulations to Bruce, you're an exemplary CFO and really appreciate over all these years.
I had a question back on distribution. It just feels a little bit like the distri channel is trying to lower inventory perhaps even more than where demand is.
I mean I know obviously your resales were pretty strong, but am I sort of perceiving that the wrong way?
Bruce Kiddoo
I think -- candidly, I think our expenses were probably being a little bit more aggressive on reducing inventory. That's something I have a strong belief about.
And so we've been kind of pushing to lower. I would say in some situation, in Asia, particularly, I think distributors who want to carry a little extra inventory whether that is in support of kind of larger OEMs, whether it's in Automotive, whether it's in gaming, and as the Data Center starts to come back.
So, we -- I would say that push to kind of manage inventory within the area of around 60 days is more from Maxim. And especially on a selling basis, you just don't want to get caught with too much inventory in a cyclical business.
And so we've been managing that. And as you said basically we had good resales up 8%, normal seasonality is up 5%, and so I think that was positive.
And we pretty much saw strength; China was up 14%, Japan up 16%, Taiwan up 6%, these were -- Asia was reasonably comfortable from that point of view. And we just used that opportunity to manage our shipments in, in order to bring down the overall channel DOI.
Tore Svanberg
Very helpful. Thank you.
Kathy Ta
Thank you, Tore.
Operator
Thank you. Our next question comes from the line of Toshiya Hari from Goldman Sachs.
Your question please.
Charles Long
Hi guys. Thanks for taking the question.
This is Charles Long on for Toshiya. And also Bruce congrats, good luck in all of your future endeavors.
I just had a quick question on the overall hyper-scale environment. I was wondering, how you would characterize it as it stands today and if you've got any visibility on potential pickup or stronger trends in that end market?
Thanks.
Tunc Doluca
So -- all right. So the largest portion of our hyper-scale business currently is actually on the optical side.
And on the optical side there was a growth in inventory that occurred last year. And what we're seeing is my commentary is going to be limited mostly to that piece of the business.
And that inventory took quite a while, multiple quarters to actually work itself down. So what we're seeing from the module customers that we sell into and then the module customers sell to the hyper-scale end customers, they're pretty much indicating to us that their inventory levels are now coming back to normal.
And they’ve started placing orders. So that is not a direct implication about hyper-scale customers, because there's another -- somebody else in the way that’s also building inventory.
So -- but it does indicate that if there was extra inventory at the end hyper-scale customers, a lot of that must have been consumed as well. So that's the extent of our knowledge or look into the cloud customers.
I don’t know how much that helps, but that's all we can really say.
Charles Long
Got it. Thank you.
Kathy Ta
Thank you, Charles.
Operator
Thank you. Our next question comes from the line of Mitch Steves from RBC Capital Markets.
Your question please.
Mitch Steves
Hey guys, thanks for taking my question. I just wanted to circle back to Auto and Industrial piece.
I think there is a little bit concerned that that's going to be kind of be longer, I guess semi cycle downturn, and then there's a lot of concern around the share shifts. So how would I think about you guys current position in Auto and Industrial.
Do you guys think you're gaining shares in that space, what do you think the underlying growth rate is for both those end market?
Tunc Doluca
So let me just talk about Automotive first. So in the Automotive market, we -- for many years, we actually were growing faster than the market growth.
And we project that we still will grow faster than market growth, mainly because of two major growth drivers for us. One of them being the BMS market, and the second one being the serial link products or the ADAS products that the company is making.
So those two I think were still robust areas where we have a strong position as well as a strong pipeline of products. Not to mention the strong design wins that I talked about that we registered throughout the year.
The infotainment piece will probably grow at similar rates as infotainment content in cars. And I think that's still – it’s pretty robust it's more than the Automotive unit sales growth.
So, I think Automotive is going to do well, but -- and especially in markets where we have large revenue content, which is infotainment and auto body electronics, we will be impacted by auto car production in the world. And right now, that's kind of going through a negative growth period.
But I think eventually people will buy cars, so it will recover. And I think we'll be able to grow, because of the two growth drivers I mentioned.
We'll be able to grow faster than the market growth.
Mitch Steves
Got it. Perfect.
Thanks. And just a quick clarifying on, what you guys think how long the cycle is going to last and turns into auto Industrial?
Tunc Doluca
So that is – that's always a dangerous thing to predict. We – it's a not very easy to do, we look at charts, to see how we can predict that.
But it's pretty elusive. I think there are just too many external factors that are affecting it.
And let me – know, those factors bring what's happening with trade, what's going on with China, those are all kind of affecting both the Automotive parts as well as the Industrial part of the business significantly. So we were not going to – of course Bruce can take this risk and predict it.
But from my point of view, it's very difficult to say where the end is. The metrics that we watch for is what kind of bookings are we getting, but that only gives you a three-month view.
And we ask questions to our customers about inventory levels, because – when I gave some color on the Industrial inventory answers we got from just a handful maybe two or three customers. But other than that we don't have a clear view of when the cycle finally ends.
But it will end someday.
Kathy Ta
Okay. Thank you, Mitch.
Operator
Thank you. Our next question comes from the line of C.J.
Muse from Evercore. Your question please.
C.J. Muse
Yes. Good afternoon.
Thank you for taking the question. And Bruce let me echo everyone else's thoughts you'll be missed.
Quick follow-up question on Huawei. You talked about into September declines at Huawei as well as weakness broad-based products.
And just curious here, you also said that you're able to shift most products to Huawei. So do you have disproportional shares to Huawei?
Or is the entire supply-chain influx given the uncertainty of whether business will move to other players? Can you provide little bit more color on how we should be thinking about the uncertainty there?
And when you think we'll have better visibility to end demand and growth drivers there going forward?
Bruce Kiddoo
Yes. So when we think about Huawei – and we've said this before they're about 2% of revenue, if you think about that kind of like $50 million a year number.
We were able to – as Tunc we've been – generally able to ship product within the rules. And in essence didn't see much impact in the June quarter.
When we look at September, and we kind of talk to Huawei and talk with within the channel, what we see is basically Huawei is trying to kind of sort through their supply chains and try to – as Tunc said, figure out what backlog do they want to play, and I think it's – it's the whole combination, what's their demand, what's their inventory level, just the availability of the entire BOM, and we just saw a lot of uncertainty there. And so, in essence, we almost zeroed out Huawei.
I think, we left a small amount in there, but as Tunc said, it's probably down $10 million quarter-over-quarter, which, if you think about, $50 million on run rate, that's most of it. There could be upside.
We're obviously continuing to meet with Huawei and understanding what their demand is, but I think just from being prudent, from a forecast point of view, we know we just took that number down. I'm not going to try to predict what happens with that situation on – kind of on a geopolitical basis, that's well, well beyond my capabilities.
But for now, we kind of guided, as we always do, to what we kind of think we can say confidently and investors could count on. And so that's kind of what we've done.
I think for the broader comm and datacenter outside of Huawei, obviously, Tunc 's talked about data center, we've definitely seen orders coming back there. And so, that business is up strongly sequentially, but, of course, it's still down year-over-year.
And then on the overall comm market, again, I think, similar to Industrial, I think, we still see kind of stable order flow, but at a much lower level, right? So that kind of – that broad-based weakness, similar to what we've seen in Industrial, it's stable, but we haven't seen kind of signs of that recovery yet.
C.J. Muse
Thank you.
Bruce Kiddoo
Yes.
Kathy Ta
Thank you, CJ.
Operator
Thank you. Our next question comes from the line of Chris Caso from Raymond James.
Your question, please.
Chris Caso
Yes. Thank you.
And I'll certainly echo my congratulations to Bruce, it's been a pleasure. The question is, on the comments on the Samsung business.
And you had some earlier comments, as that drops to 5% of revenue in fiscal 2020. I guess the question is, once it gets down to that 5% level, what's left?
And from there based on the R&D and design work you had, are you -- do you expect to grow that business? Is that kind of just a steady-state business to that point?
Or at that revenue level does some of the variables and non-handset parts of the business allow it to grow going forward?
Tunc Doluca
Yes. So, I don't know if we're giving the wrong impression here, but Samsung is still a very valued customer and we continue to support them in their design of their products.
And they buy more than just smartphone products from us, by the way, not a single product company. So from our viewpoint though, when we see opportunities, we're – we want to be careful that we're doing something special in terms of performance for them.
And from our viewpoint, if we find those types of opportunities and the return on investment make sense we definitely will go for those sockets. But in terms of forecasting next year and so on, we want it to make sure that we give what we felt was the most likely outcome of what's going to happen next year.
But I don't want anybody to have an impression that we're -- we don’t value that customer. We do.
There've been a good partner to us for many years and we'll continue to sell or market our products to them just like we ever have and continue on that. Whether they will grow or not, time is going to show and it might or might not.
And in terms of the -- basically the product that we have forecasted for next year, product that they've used for many years and is one they value and they see the performance advantages from Maxim. So we believe there going to continue to use it.
Kathy Ta
Thank you, Chris.
Operator
Thank you. Our next question comes from the line of William Stein from SunTrust.
Your question please.
William Stein
Great. Thanks for taking my question and Bruce, Tunc like on my congratulations.
Question on the M&A environment, Maxim has not participated recently although in the past it had, and there's been some incremental level deal flow in the last few months. And I'm wondering to what degree Maxim would consider participating?
Tunc Doluca
Yes. I mean our M&A stands really has not changed.
We're -- we continue to look for any companies or product lines for that matter at other companies where they will be accretive to us, they'll -- after we go through and work through the integration, they will be not dilutive to our great margins structure. And in the end, we don't want to overpay.
So specially on that last part, you're going to see what stock price at these levels it makes it pretty difficult to find a good fit to Maxim. But as I said we're -- still look we have a corporate business development group.
And we look at what the assets are that we can purchase and see if we can add revenue and free cash flow that way as well.
William Stein
Great, thank you.
Kathy Ta
Thank you.
Operator
Thank you. Our next question comes from the line of Cody Acree from Loop Capital.
Your question please.
Cody Acree
Yes, thanks for taking my question. And Bruce congrats and thanks for all the time over the years.
I guess just your thoughts on OpEx, it sounds like things might be uncertain for quite some time. And maybe Brian will have different thoughts later, but what are your current thinking on an OpEx for next year?
Bruce Kiddoo
Yes. So, I think as we've seen it -- we tightly control OpEx.
We kind of keep it in line with revenue. We are usually in the spirit of a kind of a slowdown, it usually come in underneath our forecast a little bit.
It's a very experienced management team. We've all been in the industry.
We all understand cycles. And so, usually before my team going and reverse targets the management teams already off kind of lowering spending and controlling areas.
That said, I think, it's important to highlight that we are absolutely continuing to invest in our growth areas all right? We’ll continue to invest in whether that’s in Industrial in factory automation or whether its automotive, whether it's in the data center, even in to the extent sort of the broad-based consumer business.
And so we understand those. We are good at making choices and kind of doing our ZVB and drawing the line of where we invest, but you've got to believe what's going to drive growth in the future is above the line and we're continuing to invest and we're just pretty good at continuing to take them more discretionary items and being pretty tight on those.
As far as the model goes, our standard models always been to grow at about half the rate of revenue. And I think that's how we'll continue to look at OpEx going forward.
But as we've said like in the overall environment and it's difficult to predict what's going to happen on the revenue side, but those things we control whether it's OpEx, whether expanding within our fabs, whether it's inventory on our own books, inventory in the channel, all those things within our control, we're going to tightly manage that. We continue generate 34% free cash flow margin in a downturn and we'll obviously generate much more than that on a -- in the upturn.
Cody Acree
Great. Thank you much.
Kathy Ta
Thank you, Cody.
Operator
Thank you. Our next question comes from the line of Christopher Rolland with Susquehanna.
Your question please.
David Haberle
Hi, its David Haberle on behalf of Chris. You mentioned a pipeline of Automotive design wins of $1.1 billion in 2019 and that it's up strongly year-over-year.
Can you give us a sense of your expectations for how this pipeline ultimately converts in the revenue? And then also which products make up the bulk of the $1.1 billion?
Whether it's growth opportunities such as BMS and ADAS or more legacy type of auto products?
Tunc Doluca
Yes. So, -- okay so -- first of all, the pipeline obviously is the lifetime revenue you get from those design wins.
Maybe I wasn't that clear about that. So, how it distributes kind of depends on the particular design wins, some products have -- design wins have longer lives than others.
Much of this win is in the areas that I mentioned before. I think if you look at them, the serial link was area of wins Automotive power products whether whichever -- N function going to or a big portion of it and BMS also was large.
So, it's all in the expected areas of the design wins. And I think that we are -- and the growth as I said was about 20% -- 26% year-over-year.
So, all that kind of signals that we're going to have robust growth once the Automotive production gets back in line with what the long-term growth rate has been, which is in 2% or 3% unit growth in the high single-digits for content growth and we think we're going to grow better than that, so still in the low teens is our expectation. But most of those design wins came exactly in the areas that we were exactly which should be no surprise and they were kind of all over the world.
So, there's no single region where they were concentrated in either. So, that's why we're feeling very good about future growth in Automotive.
David Haberle
Thank you.
Kathy Ta
Thank you, David.
Operator
Thank you. And I'm not showing any further questions in the queue at this time.
I'd like to hand the program back to Kathy for any further remarks.
Kathy Ta
Thank you, Jonathan. That does conclude today's our 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.