Solutions

9-204-066

REV: FEBRUARY 11, 2004

MALCOLM P. BAKER

ALISON BERKLEY WAGONFELD

Dividend Policy at Linear Technology

It was April 2003 and Paul Coghlan was pulling together his notes for Linear Technology’s board

meeting the following day. As chief financial officer of the Silicon Valley semiconductor company,

Coghlan was responsible for making a recommendation about whether or not Linear should increase

its dividend this quarter. Coghlan and Linear’s CEO Robert Swanson were pleased with the

company’s third-quarter financials for fiscal year 2003, but sales and net income still remained

substantially below Linear’s record levels set in 2001. In addition, the technology industry was still

emerging from a recessionary environment and it was unclear how strong business would be for the

remainder of the year.

Linear Technology Corporation

Headquartered in Milpitas, California, Linear was founded in 1981 by Robert Swanson. Under his

leadership, the company focused on designing, manufacturing, and marketing integrated circuits

(semiconductors) that were used in various electronic applications such as cellular telephones, digital

cameras, complex medical devices, and navigation systems. Linear’s customers spanned numerous

industries and no single customer accounted for more than 5% of its business. In 2002, the

communications industry accounted for 33% of Linear’s business, computers 27%, automotive 6%,

and the remaining 34% was spread across many different applications.

Linear focused on the analog segment within the broader semiconductor industry. Analog

products were custom-designed for each application and were used to perform functions such as

regulating power needs in complex electronics such as cell phones and digital cameras. Competition

among analog companies was based in part on hiring and retaining top engineers who would

continuously develop high-performance products. Capital investment in new fabrication facilities

(“fabs”) was also important, although the cost...