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Maxim Integrated Products' CEO Discusses Q3 2012 Results - Earnings Call Transcript

Turning to the balance sheet and cash flow. During the quarter, cash flow from operations was $196 million or 34% of revenue. Inventory declined slightly to 89 days from 91 days in the prior quarter. Inventory in the channel, excluding catalog distributors, increased 1 day to 57 days. In dollar terms, general inventory declined by 4%.

Net capital expenditures totaled $44 million in Q3, as we invested in long-term manufacturing capacity and new facilities, offset partially by the sale of a building. Free cash flow was $140 million or 25% of revenue. Share repurchases totaled $29 million in Q3 as we bought back 1.1 million shares. Finally, in Q3, we paid $64 million in dividends to our shareholders. Overall, total cash, cash equivalents and short-term investments increased by $119 million in the third quarter to $936 million.

Moving onto guidance. Our beginning Q4 backlog is $388 million, up approximately 6% from the prior quarter. Based on this beginning backlog and expected turns, we forecast Q4 revenue of $590 million to $620 million or up approximately 6% at the midpoint from Q3. Q4 gross margin, excluding special items, is estimated at 60% to 63%, improving due to higher revenue, associated higher utilization and strong spending controls. Other variables that may influence Q4 gross margin include product mix and inventory reserves.

Special items in Q4 gross margin are estimated at slightly over $9 million, primarily for amortization of intangible assets. Q4 operating expenses, excluding special items, are expected to be up 2% to 3% sequentially, less than half of the revenue increase. The increase in OpEx is due primarily to higher variable bonus and moving costs for our new headquarters building.

Special items in Q4 operating expenses are estimated at $4 million, primarily for amortization of intangible assets. This excludes potential items that may occur during the quarter.

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