Linear Technology Jumps on Factory Index: San Francisco Mover

Linear Technology Corp., whose microchips are used in computer tablets, factory automation and medical technology, rose the most in almost a month as U.S. manufacturing strengthened in September and orders may have risen last quarter.

The Institute for Supply Management’s U.S. factory index rose to 51.5 in September from 49.6 a month earlier, the Tempe, Arizona-based group said today. Economists in a Bloomberg survey projected a reading of 49.7 for September, according to the median of 76 forecasts. The dividing line between expansion and contraction is 50.

“The ISM data, which came out today, may have given them a boost because they because have exposure to the industrial end market,” Shawn Webster, an analyst at Macquarie Capital in San Francisco, said in a telephone interview.

Shares of Milpitas, California-based Linear rose 2.4 percent to $32.57 at the close in New York trading, the most since Sept. 6. Other analog chipmakers such as Maxim Integrated Products Inc. and Analog Devices Inc., also rose today, and “are performing better,” Webster said.

“I like Linear’s high-quality business model and they have exposure to the fast-growing power-management chip market which will enable better growth in coming years,” Webster said. Macquarie has an outperform rating on Linear with a target price of $35.90 a share.

Industrial Demand

During an earnings conference call in July, Linear Chief Financial Officer Paul Coghlan said customer bookings had held up well, due in part to automotive and industrial end market demand, although were likely to slow during the quarter that ended last month.

The company had also reduced factory production rates and managed its inventory in response to slower demand in previous quarters.

“They may have had a stronger end of September quarter for bookings and if so, will have a strong December quarter,” Richard Whittington, an analyst with Drexel Hamilton LLC in New York, said in a telephone interview. “Bookings could be up 6 percent to 8 percent, which is stronger than usual for them.”

If companies are ordering again, and inventories are lower, “we’ll see a better September than normal and probably a strong December period and that may continue out into March,” said Whittington. Personal computer makers are “seeing better business and ordering more analog semiconductors so there is some vibrancy to the market.”

Drexel Hamilton has a buy rating on Linear with a target price of $40 a share.

“Linear is a very solid company and they sell to thousands of customers, which makes them better diversified because they don’t have one 10 percent or even one 5 percent customer,” Whittington said. “They are more in tune with their end markets.”

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