Mannerisms

Wall St and LTC have been in a stand-off for many years, with financial analysts refusing to recommend LTC shares while LTC pursues a strategy of only making highly profitable parts – in the high 70s of per cent gross margin and around 40 per cent net margin after tax.

In 2006, LTC made a 39 per cent net profit on revenues of $1.1bn, compared to Microsoft's 2006 net profit of 26 per cent of sales, and Google's net profit of 24 per cent.

But, despite being highly profitable, and growing at about 5 per cent a year in sales revenue, LTC shares have not risen for the past six years.

This is a bit galling for employees who want to see stock option appreciation

So, recently, LTC attempted to boost its share price by buying 30 per cent of its own stock. The move cost LTC $3bn, $1.3bn was taken from its $2bn cash pile, and $1.7bn was borrowed money.

Despite the huge purchase, the LTC stock price has, nonetheless, stayed stubbornly resistant to change.

It is rumoured that the departure of Dave Bell, former President of LTC and now President of Intersil, was to do with exactly this issue.

Bell had decided that LTC should go for high growth markets, like cell-phones, at the expense of dropping its enormous margins.

However, LTC’s founding CEO, currently chairman, Bob Swanson, said the company should stick to its long-term strategy of high margin, steady growth.

You can tell when a company plays the Wall Strreet game. They get stuck on a treadmill of chasing ever-higher growth and profits.

Then what happens is they become governed by numbers. You can see when companies get infected by the Wall Street metality, because threy often start behaving in ways different to usual industry practice.

For instance Rambus and Qualcomm start charging unusually high royalties on IP, or STMicroelectronics keeps on obsessively cost-cutting.

So it's good to see LTC sticking to its knittting doing what a high-technology company should do, producing superb parts.