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Linear Technology Memo

In:

Submitted By okur
Words 1309
Pages 6
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M E M O R A N D U M

To:
From:
Date:
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Re: Changes to Dividend Policy at Linear Technology
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The purpose of this memo is to provide a recommendation to Paul Coghlan, CFO of Linear Technology, regarding adjustments to the company’s dividend policy. Linear Technology’s current dividend policy yields a higher than average payout ratio and sets them apart from other technology firms. The firm’s financial data for the past five years as well as data from other semiconductor companies was analyzed to support the following recommendation. To appease shareholders and analysts and reduce cash on the balance sheet, Linear Technology should continue the stock repurchase program and increase the 2003 Q4 dividend to $0.06 per share.

What does Linear Technology do?
Linear Technology’s business focuses on high-performance analog integrated circuits with a business model of a complete analog focus and cream-skimming the high-margin part of analog. Linear Technology uses a low-maintenance model with a variable cost structure. It designs, manufactures and markets its broad line of products for major companies. The competition in the analog segment is fierce, with companies like Maxim, Analog Devices and National Semiconductor leading the market. Maxim is the closest competitor in terms of size and financial performance.

How has Linear Technology done?
Linear Technology has done wonderfully until the end of 2001, thanks to low cost of capital, high margins, and steady growth. Its growth margin has been constantly growing over the years, to stabilize around 80%. Its EBIT margin has skyrocketed, from 32% in 1992 to 63% in 2001, and more recently 54% (2002). Consequently, its Net Profit Margin has also

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