Businessmodel of Linear Technology

Customer Segments

Linear Technology manufactures components for a variety of customers across multiple markets. It targets the high performance segment of the analogue integrated circuit market, where high precision, high efficiency, low noise, lower power, and high speed are required. The Company’s main focus is across the following sectors:

• Communications and Telecommunications, where it provides its uModule regulator, digital power system manager and conversion products;
• Industrial, where it provides its wireless sensor network, energy harvester and signal chain products;
• Automotive, where it provides its battery stack monitor, LED driver and silent switcher products, The Company also serves customers within the IT and computing, aerospace and defence, medical, and consumer electronics sectors. According to its annual report, Linear Technology limits its exposure to the consumer electronics and cellular phone end-markets, instead favouring the industrial, automotive, communication infrastructure, and aerospace and defence end-markets, which accounted in 2015 for 88% of the Company’s total bookings.

Among Linear Technology’s customers are Motor Car Parts America, Sense Technologies, Tower International, Axion Power International, Amtech Systems and Comtech Telecommunications.

Geographically, Linear Technology divides its sales across the US, Europe, Japan and Rest of World, with the majority of sales coming from international markets.

Value Propositions

Linear Technology competes primarily on the basis of performance, functional value, quality, reliability and service.

It provides value to its customers through the quality and efficiency of its products, its brand reputation and recognition, the breadth and accessibility of its sales and distribution network, and its commitment to innovation.

The Company also provides value through its technical support and design support services, assisted by a network of reputable partners across multiple business sectors.

Channels

Linear Technology operates a website at www.linear.com, through which customers are able to view and purchase the Company’s products, via its credit card purchasing and Linear Express channels.

Offline, Linear Technology primarily markets and sells its products worldwide through an in-house direct sales team. The Company’s sales organisation is divided into domestic and international operations, comprising a network of sales offices in most major metropolitan areas of the US, as well as in Germany, Finland, the UK, Italy, France, Denmark, Sweden, Australia, China, Hong Kong, Japan, and South Korea.

Linear Technology’s direct sales team is supported by a network of domestic and international distributors. The Company has an agreement with one independent sales representative in South America, four independent distributors in North America, five in Europe, three in China, seven in Japan, three in Taiwan, two in Russia, and one each in South Korea, Singapore, Malaysia, Thailand, India, South Africa, Philippines, Israel, Brazil, Australia, and New Zealand. Linear Technology’s largest distributor is Arrow Electronics, which distributes both domestically and internationally and accounted in 2015 for 32% of the Company’s annual net revenue.

Customer Relationships

Some of Linear Technology’s product portfolio is available to customers on a self-service basis. Purchases through these online channels require no interaction with members of the Linear Technology sales teams.

Larger orders or purchases of more complex services, including the Company’s design services, require a greater degree of interaction and consultation between Linear Technology and its customers. In this way the Company is able to provide a more bespoke service, covering each individual requirement of a customer’s brief. Linear has a number of multi-year contracts in place with customers, and in certain large contracts provides a product warranty covering any major failure of its parts. The Company’s sales to international distributors are made under agreements which permit limited stock return privileges but not sales price rebates.

Linear Technology provides ongoing technical support to its customers, through its technical support portal and over-the-phone assistance.

Key Activities

Linear Technology is engaged in the design, manufacture and marketing of analogue integrated circuits for companies across the world.

The Company’s principal product categories comprise amplifiers, high speed amplifiers, voltage regulators, data converters, battery stack monitors, silicon oscillators embedded wireless sensor network, isolated uModule transceivers, radio frequency circuits, and signal chain products, among others.

The Company’s products are utilised by customers in the industrial, automotive, computer, medical, instrumentation, consumer, and military and aerospace systems sectors. Linear Technology operates through one single segment that covers the Company’s full range of manufacturing and distribution activities.

Key Partners

Linear Technology collaborates with a range of partner companies in order to ensure that it provides a quality service to customers. The Company’s partners include:

• Design Companies, which help Linear Technology to assist with customer plans, providing engineering and software design services;
• Ready-to-Use Product Suppliers, which provide pre-built partner products that can be used in customer designs;
• Software Platform Companies, which provide cloud-based and gateway software solution platforms to increase customer connectivity;
• Distributors, which extend the Company’s marketing and sales reach; and
• Manufacturing Partners, comprising assembly and production sub-contractors. Linear Technologies includes among its partners Infinetix, Vanteon Electronic Design, Arrow Electronics, Xively, Critical Link and Orchid Technologies Engineering and Consulting.

Key Resources

Linear Technology’s key resources are its technology and intellectual property, its fabrication and production facilities, its sales and distribution networks – including partnerships with third-party distributors, its personnel and its IT infrastructure.

According to its annual report, Linear Technology has been awarded more than 1,250 US and international patents, in addition to a number of pending patent applications. The Company states that while these patents have value, its future success depends principally on the expertise of its personnel. Among Linear Technology’s US patents are applications entitled ‘Low-voltage analogue variable gain amplifier with enhanced linearity’, ‘Level-shifting amplifier’ and ‘analogue-to-digital converter’.

Cost Structure

Linear Technology incurs costs in relation to its research and development activities, the manufacturing of its products – including deals with sub-contractors and suppliers, the sale and distribution of its products, the maintenance of its IT infrastructure, the retention of its personnel.

As of 28th June 2015, Linear Technology employed 4,868 members of staff, representing costs in the form of salaries and benefits. The Company also accrues significant administrative costs in relation to the operations of its domestic and international sales offices.

Revenue Streams

Linear Technology generates revenue through the manufacture and sale of precision components to end users within the high performance segment. The Company sells a range of semiconductor products, including power management, data conversion, signal conditioning, radio frequency and interface integrated circuits, proprietary μModule subsystems, and wireless sensor network products. The Company operates through one reportable business segment.

In 2015 Linear Technology generated $1.48 billion in annual revenue, up $86.7 million, or 6.2%, on revenue recorded for the same period in 2014. The Company attributed this rise in revenue to increases in demand across all end-markets, led in particular by the industrial and automotive sectors. The majority of the Company’s revenue was generated through international exports across three geographic regions: Europe, Japan, and Rest of World.