Analog Devices (ADI) 21 Aug 242024 Q3 Earnings call transcript

Good morning, and welcome to the Analog Devices Third Quarter Fiscal Year 2024 Earnings Conference Call, which is being audio webcast via telephone and over the web. I'd now like to introduce your host for today's call, Mr. Michael Lucarelli, Vice President of Investor Relations and FP&A. Sir, the floor is yours.

Thank you, Kevin, and good morning, everybody. third XXXX our call. joining for quarter conference fiscal Thanks ADI's call Chair, Rich With the are Puccio. CEO CFO, me on ADI's today and and Vincent Roche;

For it you at anyone the financial investor.analog.com. relating schedules find who missed and release,

of statements rate, to update cash reflect the with special the special our date includes statements, These historical basis. our operating by in from Vincent flow a be discuss other Reconciliations results and about periodic are forward-looking CEO over Chair, to and except operating, as reports measures which these margin, about exclude items our as in filed risks forward-looking further ADI's certain and comparable will We also information margin, directly with non-GAAP disclosures. materially our described additional from most free our in nonoperating our as gross included expectations differ measures the our as to The the of on undertake could subject only earnings no these the required call. Onto results and this comparing earnings to I'll we're GAAP tax prior uncertainties, to turn expenses, SEC. obligation information release. And today comments periods. excluded non-GAAP are and that, it performance, information non-GAAP Actual are items. law. References Roche. to release materials When today's and statements these EPS measures

our and all more and north billion, resulted third midpoint XX% and and challenging very remains for outlook. are EPS margin to most product demand momentum good our you geopolitical the quarter limiting across our the execution morning a all. favorable of however, of my combined very in levels inventory portfolio this order stronger Thanks for of sharp economic operating Mike, results, guarded $X.XX, of than and With high-performance above bottom quarter ADI. By with revenue of These $X.X optimism markets, confidence second recovery. customer increased a much, skillful marked that improved our cyclical conditions

strategic extraordinary continue near-term initiatives, the we We balance in see opportunities on positioning discipline our growth that to ADI investments capitalize ahead. fiscal long-term to with

to our which our X to on largest, to industrial profitable like streams close draw most I'd last diverse average. generating Now and attention market, durable is end most business, that revenue decades

high-performance antenna our offer market. growth business long-term recover industrial and As to the to the opportunities an about kilowatts. pandemics begins our sensor we're the We volatility, bits, to to from from solutions of stretching suite of cloud customers excited unparalleled tremendous nanowatts

enabled our positions Our industrial sectors. extensive expertise to engineering across technology portfolio, leading combined muscle and the has most us domain with attractive deep secure

the to challenges with is portfolio, positioned and and secure difficult capabilities, many, connectivity cutting-edge many years digital a revenue and factory Now illustrate and our the strong our positioning growth unlocking strongly streams augmenting our growing most automation ahead. ADI industrial you of process in customers' and recent our our software and algorithmic us power solve efficiency, in are innovations let share more. To energy examples few with of me new franchise, how for potential

to scientific test For equipment, test the electronic crucial and automated essential instruments, GPUs are and systems and system. density while throughput which XX% by These test parameters energy test high-performance next-generation example, AI. our and example, of solutions up measurement the to high-bandwidth for for era. Within compute automated equipment include testing complex, per our reducing memory digital instrumentation and business important is consumption increased technological scientific channel for and advancements

beyond. and growth to global for continue into [indiscernible] the indeed well infrastructure AI hyperscalers, As remains expect XXXX priority a we

high and speed high-performance scale, our complete total Turning business most edge during velocity uniquely domain in downturn. converters, and this offering deliver and precision resilient portfolio expertise our has been customers and ADI's Microwave, power solutions, lower now to and aerospace of to positions cost across defense, MEMS, which us RF ownership.

today potential eventually surgical effectiveness and connectivity. to management. Within of edge robots. What in surgeon's a mobile by see autonomous sensing, to strongly full wins instrumentation health precise for their humanoid additional improve several confident potential production. In robots prioritizing opportunities evolution enhanced drive ADI's create more and more and the humanoid a the This secure fixed for need has sensor hundreds the dollars in increased increase this by and signal isolated Indeed, products [indiscernible] integration today franchise, which is we've XXXX, connectivity factory with are and through Their control defense IT/OT robotics surgical seen As an double-digit advanced advances, thousands efficient productivity systems progression machines dramatically future Signal seeing is software-defined recovery growth chain we're path from upon digitalization we're high-value robotics, to programmable we example, date, with building applicability a a automation, growth factories our that sector processing, the broad though Apollo Xx power aerospace to about as and systems. solutions deployments design potential communications these Gen in benefits to to more our lower to can subsystems Customers and have beyond our autonomous and and going and communication to and platform connectivity robots. SAM in precision in are commercial, in of a fueled such we car arm experience care. slower to on floors. are are its fully imaging sensing in ever in-line additionally clear. the creates robots robots exciting as systems remain of from driving revenue latency motion content

and potential in doubling shorter to our solutions. ahead. opportunity the in patients connectivity evolution a dollars expected billions power sensing robotics Analog, and stays see is hospital high-performance mixed revenue Additionally, signal, the the for years of of complications. of fewer of gained benefits robotics potential unlock We The potential our for

to Turning distribution. now transmission energy and

by Our linear, electrical proliferation in the dynamic customers distributed to is grid grid digitalizing and are a electric AI supply. in a resulting that and transportation and the accelerating from This past model driven of paradigm to is of modernizing exponentially adoption. bidirectional, part energy the process respond stable shift rapid demand,

working and the with capabilities analog We're energy to algorithm power leveraging grid traditional suppliers our to the edge. for disruptors solutions. new the from plants We're cutting-edge and necessary in monitoring management intelligence and enable decentralized distribution

technology of over creates $XX has tailwinds potential come. for the intelligent and improves SAM the grid's the utilization renewable Additionally, systems. expand years capacity energy our billion storage for our by many our battery management reimagined grid future energy increases and This franchise in energy to to

of portfolio, synergies our a robust growth market year. the and Given industrial industrial turned recovery, across pace we're our that the for optimistic the corner will has emerging of signs business innovation and be our 'XX

enabling business into our Analog solutions are cycle and to propel the transcend and in So will secular investments with in the high-performance future. leverage us closing, concurrent us numerous that intersect the trends

Our value. that to ultimately will impactful commitment success and customers' shareholder path our to innovation carries long-term there, be increasing us the

numbers. will over going to with take that, through Rich, who to it I'm so you the turn And

Thank Vince. you,

call. my me our add third earnings Let quarter welcome to

and the industry-leading quarter XX% Every X% up digestion We outlook and represented revenue wireless inventory quarter, year-over-year. down sequentially midpoint and applications electrification growth revenue, sequentially. And of sequentially XX% connectivity strength finishing of portables finishing came X% above third slowing revenue are and our notable down saw finishing customer XX% Industrial customers, our year-over-year XX% businesses. first XX% Third in power up XX% $X.XX impacting automotive represented in year-over-year. platforms. year-over-year. XX% sequentially for time than the gaming. XX% both functionally inventory declined Conversely, billion our safe the of extending saw sequentially automation, Automotive growth legacy production wireline previous revenue a for sequentially, since enabled it sequentially double-digit represented year-over-year flat of increased in major application represented year-over-year. We and and digestion across which of diversified and across had much down revenue, automotive except growth particularly continued Communications in quarters. at slower XX% consumer down pace for finishing X% lastly, with cuts up and and increased finishing up of XXXX.

rest the the Now top P&L. the to from let's move line of

result XX.X%, gross higher XX.X% points basis which modestly was mix. higher margin driven for primarily finished EPS end sequentially, exceeded tax the in net $X.XX expenses Third at higher was expenses utilization of Operating the of Operating margin outlook. up high Nonoperating $XX XXX revenue, and end quarter outlook. sequentially, the our by of million, of the compensation. The up driven the our by XX.X%. high variable near finish favorable was quarter quarter and million, rate $XXX were

cash and of more Inventory $XX billion a I'd and and and declined like and QX Our short-term from to items financial balance ended position net to cash X.X. statement. is from than sequentially few our sheet ratio out days million leverage call XXX a with We XXX. $X.X of investments decreased solid, flow

further we trailing inventory respectively. billion and near was and As $X.X of billion, the XX billion, reduced million for planned, this for CapEx low $XXX quarter to X- respectively. trailing XX was quarter the cash X-week target. Operating ending our months the with channel end and $X quarter weeks flow and months $X

the are tapers. European XX% $XXX these investment is CapEx Not the our hybrid For cycle as roughly XXXX fiscal which 'XX, is U.S. and benefits in our CHIPS versus from plan, anticipated down to figures both tracking million manufacturing Act. included

generated During of the flow we months, XX $X.X or billion last free revenue. XX% cash of

returned time period, $X.X billion share the and dividends have same repurchases. we Over via

our the free term. XXX% over reminder, strategy our a long flow is our of return to As shareholders to cash

to minus midpoint. $X.X turn up is the Revenue or billion, I'll to fourth $X.X sequentially Now million, the X% at plus be outlook. quarter -- $XXX expected

in be is this communications we sequential to plus to to At expect roughly margin points. consumer decrease. Operating basis automotive or expect midpoint equal minus We to a to industrial to XX%, basis, and be on flattish sell XXX and increase the be sell-through expected quarter.

be XX% $X.XX. is inputs, or XX%. to Our between and EPS tax these rate to based is expected minus be plus And expected $X.XX on

quarter trough. this outlook our fourth In have closing, results our we quarter and that support third passed view cycle's

conditions and demand economic to now limiting challenging Q&A. a back will geopolitical for recovery. I faster give it Mike However, are

Thanks, Rick.

our Instructions] to please. [Operator With session. our will Q&A first get we Let's that, question, have

comes with Instructions] from Our first Stifel. Tore Svanberg question [Operator

inventories have here. the end time, sort a demand Great you environment, maybe to mixed. bottomed bit inventories At -- right? at mixed kind little turn Because see on same could be the more excess this seems to of bottom. of elaborate Vince,

on see want new you period, at cycle? these backlog new into the ramping trending? bit is more a starting finally are as production because you visibility? How elaborate that you typical you see a navigate to could of to signals products So this little through beginning your Are

our plan production, Tore. company Well, we company on first Thanks, say, signals. mean, run how I'd the Yes. how this I run we [indiscernible] we operationally. foremost, That's and

of So XQ the sheet meet indeed market has that. bottom. our very, very own that happening our inventory. close in in terms quarter inventory very attention balance on the XQ we well inventory of with increased of to with cyclical expect demand my taken We've the since a was own exited that positioned confidence very, what's equipped pay And that we end anticipated very healthy and upsurge though, We've very, very very, lean 'XX. channel demand. we're sheet, to backlog We're balance so ready last

So as continued customer we'll improvement the inventory in indeed, see think, in And expect levels. see, quarter, also we continued to growth. I on said, fourth area, the industrial particularly we've sequential

will recovery the the depend the the win nonetheless, look, ramp we of record So -- on have design recovery a the wins, But the given company. macro in pipeline whole design it's situation. all

very, So on the lean very customer's we're tailwinds many good a very pipeline, supply very very, secular facing and with line balance inventory sheet. a with strong many,

that So me optimism, new well into we're the coming that year. very positioned gives Tore, the very,

question Joseph Our Morgan from with Stanley. next comes Moore

automotive industrial. like severe. My kind customers on what bit safety Can in that into about a overall where might inventory drawing of we correction stock And talked I entered little a automotive headwinds some guess in just trajectory has much space. later sort you and question been talk versus the is of far you about expect It of are less so drawdown down you inventory? automotive? and seems ongoing

So I'll is Joe, crack one. this take Rich. a that at

a we software-defined, largely is growth electric become that, set perspective our sensors, tailwind level semi-content we're what our in to and going battery be expect to driving just from the address increased market a to that densities, to continue I'll and bit long-term our And seeing cars more displays. which business. trying more So also is little do

our However, inventory. in and we're at pull to the we're customers where choose has We're production. to the And burn this some to softened them market start the this term. off seeing is some starting point, seeing vehicle near their back pullback, see of on

softness quarters, are expect in XQ. And is right? did seeing The has a in auto, be in into legacy our we down that, results. challenging we our our quarter, been when in and bookings again straight you for in So we at bookings will inventory auto that particular, fourth perspective, continue we've evidenced and environment down X purchasing decline in see from that particularly year-over-year and consider Auto seen we a BMS exists customers. for digestion portfolios, to that's the the going expect least currently in it

value markets. pandemic nearly don't underlying the to returns your as SAR However, the to in other as peak saw end Also, around levels, electric whether ICE, we to we've dramatic across we to plug-in to question trough, electric in see full being trough unless in or trends The secular see peak our penetration semi-content. continued applications. described, vehicle all that higher types, more hybrid, the fastest-growing growth capture driving I it's

think ADAS, that you electrification. If digital about and cockpit

for So in we down, be industrial. to but we we severe saw, the example, cycle expect be depth that don't as as will

markets I that are? the is you Western are regionally guess behavior different in And China different than automotive they any a where follow-up, market terms seeing of as the

pretty No. design okay. across say markets. [indiscernible] We overall, there. did talked it's some unanimous about I'd and say, I'd ramping all

Asia. offset was America, an auto of a ago, But So or comment, overall it's bit some days softness. that's helping North the today as than Europe whether weaker it XX is

Arya question Vivek of comes with next from America Bank Securities. Our

Vince, Autos, tends sure, down growth given glad about grow. for bookings consumer you corner. think sequential optimism be of the about QX? cyclical commentary environment I'm to into Do some hear your the It seems to continue allows and industrial turning seasonally. the to not could like

we model into how shape So just this should of QX? recovery conceptually, the

equilibrium. is to generally given and the in seasonal a bounce think, would of hard probably Yes. a we speaking, see that Well, it's at the But a in it's this a bit call of then quarter -- second. this decline say, the point, little environment still first let's to back expect I bit

brisk think a I that we would that's sentiment. see the growth outlook maintain in overall, my I here But 'XX.

the about we've years our seasonality been It's since [indiscernible] a a little question. business. in seasonal seen few trends now

XX% single auto for [indiscernible] update markets You're as Vince right, if probably there's you is And in -- today consumer and look said, be plus But any low where there's and XX, given no down XQ. sequentially years back ADI, belief over we digits. we'd are XQ, are the past probably feel days comms the down XX industrial, that and we'll better XX than about seasonal, through today. of

Yes.

is will modulator their C-suite in for can in also is customers industrial industry particular. think big I us for suggest the optimism our what you various had tell that strong what conversations be I And the with I've that 'XX. would happens

Arcuri question Timothy with next comes UBS. Our from

answer. on to ask wanted that just I

above and commit seasonal Did bookings seasonal that above not going QX. the that to or QX seasonal QX. you like something is the seasonal days there you're fiscal you're in fiscal in slow don't you not on seasonal to want commit sounds above be or It Was or that would it's happened weeks streak willing something were like X% couple X% want fiscal that in bookings? to month fact in like fiscal fiscal above XX the for above be to last you or So to to modeling The of last it? QX. QX or comment just away make just

We then talk out bookings. XQ. about start guided on [indiscernible] the will never and Rick I'll expectations,

XQ. -- think expectation the I [indiscernible] for

of Rick the better XQ, changed in know we're or everyone that for 'XX pass than good a things is there fiscal up optimistic XX seasonal I'll year is would I about XQ [indiscernible] We snapback. of don't above [indiscernible] calendar have to hope in for if seasonal [indiscernible] say, 'XX. think days, in some yes, year. I dynamics. just outlook I are that full bookings a the but it

Yes.

seen Tim, quarters talked broad-based up perspective, straight QX, from until bookings we've So of a about, X we as bookings improvement.

parity. book-to-bill geographic end a weakest at from was still it And but was did see QX consumer modestly perspective, if with did saw the in quarter. growth continued bookings growth a different bookings a decline, look modest bookings orders However, around during for we weaker, communications, were offset Asia. the Europe automotive resulted in which our drop We and industrial, which Americas I total regional in we bookings in

Our next Toshiya with question from comes Goldman Sachs. Hari

guys It you was as on sheet down coming good down your come to channel and well. again to see spoke inventory inventory balance

forward, rates quarter are with what your look outlook utilization in what's on how channel? your your engaging embedded you to foundry are As as pertains it you partners? the thoughts And internally October

fact, call, and I to So bottomed is channel an be the noted both said utilization perspective, that ship we inventory gross and will proving we had to demand. QX, as the last expectation a in and margins in in end true. From is

currently end in think at weeks. to the would shipping end previously, the X I start we channel mentioned And are demand. very we've our if saw continued X low improvements, We range of to at we

in So we that fourth will do quarter. the

then hybrid when it manufacturing as internally. comes utilization balance, the possible to of high capacity. enables out choices externally, rates Obviously, our silicon system, And as we run us factories keep for have which of when capacity, lots to we've

well lot improve demand obviously, the improving the coming So our of inventory to of quarters. well, balance as got sheet rates capable and a on we've continues are utilization factories the over

point? this Or you last think follow-up, on mistaken. quick a XX% or quarter internal utilization mid-XXs, were the if -- you not that? Are I'm in at comment your rates I above As at can

rate. in quarter higher were X off of, nor level normal context And they're utilization. outlook I'll do would low I well XX lower haven't and what is utilization [indiscernible] we does [indiscernible] say utilization [indiscernible] gross for on ramp? margins. it, here you And they XQ. give if the [indiscernible] [indiscernible] call We given the last Was

If utilization. or the gross you year the look have over so, at [indiscernible] margins decline to the past decline relates in

relates to the mix. half other The

So you what can see gross utilization up, expansion. margin as pick for means . that

with comes Research. next Stacy Rasgon Our from question Bernstein

double more us consumer quarter. could like? the up by is color I for more up hoping usually you segment Any know you give said and auto industrial digits? be down. I you further give color granularity Any think consumer auto little low was helpful. a industrial next mid-single, guide is and could I further on it like that, down segments on us up, up single Is the would on

Sure, Stacy. one. I'll grab that Yes.

Communications earlier let's right, depending on sequentially. consumer I'll XX% about about sequentially. So another, we call, again, solid digits you're call double our things here. go the plus autos, or start flattish, consumer, quarter, in bit as And up on high so probably embedded a it, weak outlook. is minus, has digits digit how single single low with down about is discussed [indiscernible] little the is market, And growth

And in going quick trends growth it. anything could that are do the drives of you're helpful. next the just up? about about I you this end OpEx what if you thinking Like quarter. was a the there That's Is how follow-up, think as to Got under pretty OpEx year? well -- give the quarter? It control that

Stacy, that So I'll take one.

management. on revenue and the well our in of exceeded continued the high beat given outlook third we gross quarter, end as the obviously, margin our cost So as

modest The is during quarter. increase go will imply gross sequentially, revenue merit a despite effect margin. that increases fourth into our obviously that expectation for the our higher for driver contraction of guide QX margin Our main does and

head be the quarter. we So a into that will fourth as pressure downward

bonus. over that our with big OpEx, a the obviously, is profit Stacy, revenue accordingly. quarters. on several mean obviously that, the the dropped I and past margin And declining number

will with that Now and growth with in improvement increase But obviously self-funding, revenue increase. that's in to profitability, speak. so

should what then? up the it. Got And OpEx go

OpEx I is fourth increase the quarter our around -- X%. For outlook, sequential in would

from Our Citi. with Danely Chris next comes question

said, digestion then automotive little on out very a that going Vince, on you've at about just think saying auto you I but expand you're First, the you just talked in little a also beginning, on there, the clarification market. lean market. the that in inventory there's bit? inventory Can inventories

on [indiscernible] overall We every consumer the an Chris, it, aren't balance EV standpoint, over on whether an good cut mean, car digestion. it's about inventory market production feel different pockets don't add? and have been quarter, ICE I There that I'll [indiscernible] car levels side, digesting. customer think their inventory. the comms normalized inventory have auto know With cases call that's Yes, really anything levels. inventory to levels have I hold you or to still, Vince, that if, desire on I past impacts inventory sheet. industrial

in a -- automotive, issues and we some the think, sector think, the digestion -- overall, us, I the industrial, least where think, XXXX. is worst seen But comms into I early behind inventory Chris, we've consumer at part will is see market. of I

Great. a Or just characterize you bookings/visibility X And industrial same? the bit? quick the How improved guess, it market That's then ago? I on would your, Is little roughly helpful. it clarification a months has on now industrial. versus

growth. I Rich. but of of we are seeing consistent. yet seeing sub-elements visibility our say automation, as of sequentially improvements, the growth we not industrial seeing the all it's pretty which about, Chris, with exception across is talked And continuing we're would

question comes with next Sur JPMorgan. from Our Harlan

And of still How the sequentially in Are you region? like region seeing China growth trending domestic performing are grew Last the of it of couple looks total the have of your they sort the July. positive 'XX, you out quarters out bookings fiscal worst that sequentially. for translate China So into in about consumption, revenues sequential gave XX% growing far orders so July where revenue region been of quarter? us China signs Did then this from geography. or in quarter-to-date?

a offset performance and consumer. industrial, across China. comms growth by to did perspective in decrease see continue strong We a slightly see being auto bookings Yes.ewe double-digit from in

strong. and well, So China perform to are continue design very does pipeline win our there and our

Our TD Joshua comes Cowen. next from with question Buchalter

get to is gross of I'm and How margin environment? stable some pricing the increase, of the sequentially quarter. the improving into utilization as any envelope, mix? environment would as that in back changes in particular, well. we can I is a sort those digestion this roughly the I and getting revenue puts And of into what competitive October takes much you imagine more is through in walk despite Maybe the imagine through

see would mentioned, Yes. by continue. to stable of pretty about as But favorable say a forward. by talked -- pricing, benefit significantly stable Obviously, we customers. expect big that small and previously this is balance, and are mix. it get will pricing it's I to pricing I it's revenue do a to the impacted and we the on before, expect upside. see out we that we continue a for perspective, going I've Obviously, see and different geography continuing we and From

a high of customers they wins, new industrial forth. new tend as Where for nothing or but company, game is stable in the decades, and -- business, Once and we of so service, design, in are in will end I in there. there. the our innovation, they We, the pricing installed so is support on particular products and stay for the very, a to mean [indiscernible] the new pricing play sockets, competitiveness terms very

will game than [indiscernible]. the play significantly of each and play. new continue those most. generation thats to And We've we increase ASPs higher we with So ASPs

environment pricing the said, Rich as overall, think stable. I is So

that a margin. And so don't I headwind see on as

Josh. Thanks,

little a all August. think we today. time that's thought more the but for it's we time, I have had questions I

a guys the there can and enjoy weather out bit. You go

a to calls look guys, call. for great with future summer. forward thanks joining the of and So rest We you have

Devices today's concludes call. conference This Analog

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