Summary of Analog Devices, Inc. Conference Call Company Overview - **Company**: Analog Devices, Inc. (NASDAQ: ADI) - **Event**: UBS Global Technology and AI Conference - **Date**: December 3, 2024 Key Points Industry and Market Trends - **Stabilization in Business**: Analog Devices expressed confidence in business stability, contrasting with peers who are less optimistic. The company noted a good run of growth in bookings, particularly in the automotive sector, which had previously seen a decline in Q3 [3][4] - **China Market Recovery**: After seven consecutive quarters of decline, the China business has shown double-digit growth for two straight quarters, particularly in the automotive sector. This growth is attributed to increased content in vehicles, especially in Advanced Driver Assistance Systems (ADAS) [5][6] - **Industrial Market Weakness**: Despite growth in automotive, the industrial market in China remains weak, with over 40% of ADI's China business tied to this sector. The company anticipates that government stimulus may drive some industrial growth [9][10] Financial Performance and Outlook - **Bookings and Inventory Management**: ADI has successfully reduced inventory levels and is seeing good bookings activity. The company has managed to keep channel inventory below the target of seven weeks, positioning itself well for a potential rebound [4][6] - **Revenue Synergies from Maxim Deal**: The company has realized minimal revenue synergies from the Maxim acquisition so far, but expects significant acceleration in fiscal 2025, aiming for $1 billion in synergies by 2027 [19][20] Product and Content Growth - **Automotive Content Increase**: The average content per vehicle has increased from approximately $20-$30 in 2019 to around $100 today, with additional growth expected from Battery Management Systems (BMS) and wireless BMS solutions [22][24] - **Node Growth in Vehicles**: The number of nodes (cameras, radars, displays) per vehicle is increasing, leading to higher demand for connectivity solutions [23] Geopolitical and Competitive Landscape - **Geopolitical Risks**: Concerns about tariffs and the potential for China to indigenize semiconductor production were discussed. ADI has qualified 70% of its products for internal or external manufacturing, with plans to increase this to 95% by the end of the year [16][17] - **Pricing Pressure**: The company anticipates some pricing pressure in the automotive sector, particularly in China, but believes its innovation and application-specific solutions will help maintain market share [26][28] Manufacturing Strategy - **CapEx and Manufacturing Approach**: ADI has historically maintained a CapEx-light model and does not plan to build new fabs. Instead, it relies on partnerships with foundries to manage production capacity [30][31] Industrial Market Insights - **Mixed Industrial Market**: While the overall industrial market remains soft, there are signs of growth in specific areas such as industrial automation and aerospace. The company has seen two consecutive quarters of growth in industrial, albeit from a low base [50][51][53] Conclusion - **Optimism for Future Growth**: Despite current challenges, ADI remains optimistic about its position in the market, particularly with improvements in bookings, inventory management, and growth in automotive content. The company is focused on leveraging its strengths in innovation and customer relationships to navigate the evolving landscape [53][54]

Core Viewpoint - Analog Devices (ADI) experienced a challenging Q4 2024, but the results and guidance suggest a positive industry outlook with a return to growth following inventory corrections caused by pandemic-related issues [1][2]. Financial Performance - Q4 revenue was $2.44 billion, down 10% year-over-year but exceeded consensus estimates, indicating a slowdown in revenue contraction compared to previous quarters [2]. - The automotive segment showed a slight decline of 2%, while the industrial segment faced a 21% decline year-over-year, and communications declined by 18% [2]. - Adjusted earnings were $1.67, down over 15% but nearly 200 basis points better than expected, reflecting a mixed margin situation with a 360 basis point contraction [3]. Guidance and Future Outlook - Guidance for Q1 indicates a narrowing contraction of 400 basis points, with analysts forecasting a 10% revenue growth for 2025, suggesting a robust outlook [4]. - CFO Richard Pucchio expressed cautious optimism for strong growth in 2025, aligning with the overall positive trends in the semiconductor market [4]. Operational Quality and Dividends - The company maintains a dividend yield of 1.69% with a history of 22 years of dividend increases, indicating strong operational quality and cash flow management [5][6]. - The cash position has nearly doubled, supporting healthy capital returns, including dividends and share repurchases, which have reduced share count by about 1.4% in fiscal 2024 [6][7]. Analyst Sentiment and Market Performance - Analyst sentiment shifted from negative to positive mid-year 2024, with a consensus price target of $252, suggesting potential for further price appreciation [8]. - Following recent results, ADI shares saw bullish technical action, with a market increase of over 5% in premarket trading, indicating strong investor interest [9].

Analog Devices (ADI) reported fourth-quarter fiscal 2024 non-GAAP earnings of $1.67 per share, which surpassed the Zacks Consensus Estimate by 1.83%. The bottom line came at the midpoint of management’s guidance but declined 16.9% year over yearAnalog Devices’ earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with an average surprise of 4.9%.Find the latest EPS estimates and surprises on Zacks Earnings Calendar.Analog Devices’ fourth-quarter fiscal 2024 revenues of $2.44 bill ...

Interest Rate Sensitivity - Annual interest expense would change by approximately $15.5 million and $20.5 million for each 100 basis point increase in interest rates as of November 2, 2024 and October 28, 2023, respectively[255] - Annual interest income would change by approximately $19.9 million and $9.6 million for each 100 basis point increase in interest rates as of November 2, 2024 and October 28, 2023, respectively[256] - A hypothetical 100 basis point increase in interest rates would increase the swap payable by approximately $54.0 million with a corresponding adjustment to the carrying value of the related debt[257] - The fair value of the 2024 Notes, due October 2024, would decrease to $495,058 from $499,473 with a hypothetical 100 basis point increase in interest rates[258] Foreign Currency Exchange Rate Sensitivity - An immediate 10% unfavorable movement in foreign currency exchange rates would result in approximately $32.2 million of losses and $66.5 million of losses as of November 2, 2024 and October 28, 2023, respectively[260] - The fair value of forward exchange contracts as of November 2, 2024 would change to $31,564 after a 10% unfavorable movement in foreign currency exchange rates[262] - The fair value of forward exchange contracts as of November 2, 2024 would change to $(45,922) after a 10% favorable movement in foreign currency exchange rates[262] Debt and Derivatives - The company had $7.1 billion in principal amount of senior unsecured notes outstanding as of November 2, 2024, with a fair value of $6.3 billion[258] - The company had $1.0 billion notional of fixed for floating interest rate swaps outstanding as of November 2, 2024, with the swap payable having a fair value of $36.9 million[257] - The company had $547.7 million of commercial paper notes outstanding as of November 2, 2024, with a fair value of $547.7 million[258] Price Protection Credits and Rights of Return - Sales to distributors in 2024 were $5.5 billion, net of expected price protection credits and rights of return[270] - The liability balance for price protection credits and rights of return as of November 2, 2024, was $508.7 million, with the majority related to price protection credits[270] - The calculation of price protection credits involves subjective management assumptions about future economic conditions, which can materially affect the recognized amount[270] - The company's process for calculating price protection credits was evaluated, including testing controls over management's assumptions and data accuracy[272] - Audit procedures included inspecting distributor agreements, testing data completeness, and evaluating significant assumptions used in estimating price protection credits[273] - The company's retrospective review analysis of actual price protection credits claimed by distributors was inspected and tested[273] - Sensitivity analyses were performed to assess the impact of significant assumptions on price protection credits[273] - The company considered new information that could significantly change the estimated future price protection credits[273]

Financial Data and Key Metrics - Revenue for fiscal year 2024 was $9.4 billion, with earnings per share (EPS) of $6.38 [6] - Operating margin for the year was 41%, and free cash flow margin improved to 33% from 29% in fiscal 2023 [7] - Q4 revenue was $2.44 billion, a 6% sequential increase but a 10% year-over-year decline [22] - Q4 EPS was $1.67, above the midpoint of the outlook [26] - Operating cash flow for fiscal 2024 was $3.8 billion, with free cash flow of $3.1 billion [28] Business Line Performance - **Industrial**: Represented 44% of Q4 revenue, up 2% sequentially but down 21% year-over-year. Full-year Industrial revenue decreased 35% from fiscal 2023, with strong performance in AI-related test, Aerospace, and Defense [22] - **Automotive**: Represented 29% of Q4 revenue, up 4% sequentially but down 2% year-over-year. Full-year Automotive revenue declined 2%, with growth in functionally safe power and connectivity franchises offset by inventory digestion [23] - **Communications**: Represented 11% of Q4 revenue, up 4% sequentially but down 18% year-over-year. Full-year Communications revenue decreased 33%, with wireline outperforming wireless [24] - **Consumer**: Represented 16% of Q4 revenue, up 22% sequentially and 31% year-over-year. Full-year Consumer revenue decreased 1%, with growth in wearables and portable applications [24][25] Market Performance - **China**: Strong demand in China, particularly in the automotive sector, drove sequential growth in Q4. China represents about 80% of the company's revenue in the region, with industrial and automotive being the largest contributors [36][39] - **Global**: Aerospace and Defense remained resilient, with double-digit growth expected in fiscal 2025. Automotive demand improved in the U.S., driven by battery management systems (BMS) and wireless BMS solutions [14][36] Strategic Direction and Industry Competition - The company is investing in R&D, digital software, and AI to enhance its analog foundation and expand innovation capabilities. Recent launches include CodeFusion Studio and ADI Assure Trusted Edge Security Architecture [8][9] - The company is focusing on high-growth areas such as AI-related test, healthcare, and data center power, aiming for $1 billion in revenue synergies by 2027 [9] - A hybrid manufacturing model has been developed, with $2.7 billion invested in CapEx since acquiring Maxim. This model provides flexibility and resilience, with swing capacity expected to reach 70% of revenue in the coming years [18] Management Commentary on Operating Environment and Future Outlook - The company expects gradual recovery in fiscal 2025, with industrial leading the recovery, followed by consumer, communications, and automotive [41][45] - Gross margins are expected to improve as revenue grows, with a target of 70% gross margin achievable at $2.7 billion in revenue [64] - The company plans to return 100% of free cash flow to shareholders in fiscal 2025, after increasing balance sheet cash in fiscal 2024 [31] Other Important Information - Inventory levels decreased by 11 days to 167 days, with channel inventory slightly below the target range of 7-8 weeks [27] - The company returned $2.4 billion to shareholders in fiscal 2024 through dividends and share repurchases [28] Q&A Session Summary Question: Strength in the automotive sector, particularly in China [35] - **Answer**: Strong demand in China, driven by EV volume growth and share gains, contributed to the sequential improvement in Q4. The U.S. also saw growth in BMS and wireless BMS solutions [36][37] Question: Recovery trajectory for fiscal 2025 and beyond [40] - **Answer**: Industrial is expected to lead the recovery, followed by consumer, communications, and automotive. The company anticipates a return to growth in Q2 2025 [41][45] Question: Industrial segment performance and growth outlook [47] - **Answer**: Industrial revenue was lower than expected in Q4 due to weak demand and inventory reductions. However, the company expects growth to resume in fiscal 2025, driven by undershipping demand and improving macros [48][49] Question: Automotive pricing and growth areas [51] - **Answer**: Pricing remains stable, with growth expected in functionally safe power, GMSL, and A2B connectivity. BMS is expected to return to growth in fiscal 2025 [54][55] Question: Differentiation in AI and software capabilities [57] - **Answer**: The company is leveraging software to enhance its analog and mixed-signal solutions, with recent launches including CodeFusion Studio and ADI Assure for cybersecurity [58][59][60] Question: Gross margin trajectory [63] - **Answer**: Gross margins are expected to improve as revenue grows, with 70% achievable at $2.7 billion in revenue. Seasonal factors and mix will impact Q1 margins [64][65] Question: Seasonal trends and book-to-bill ratio [67] - **Answer**: Seasonal growth in Q2 is typically low to mid-single digits. Book-to-bill was slightly below 1 in Q4, reflecting seasonal trends [68] Question: Long-term growth potential and inventory cycle [72] - **Answer**: The company is well-positioned for double-digit growth through the decade, with a strong pipeline and improved customer relationships. Fiscal 2025 is expected to show progress toward fiscal 2023 levels [73] Question: Data center power management opportunities [75] - **Answer**: The company is focusing on high-end power and control solutions for data centers, with traction in optical control and energy solutions [76][77] Question: Utilization rates and margin impact [79] - **Answer**: Utilization rates have improved modestly and are expected to increase as revenue grows in fiscal 2025 [80]

Core Insights - Analog Devices exceeded profit and sales estimates due to increased demand for automotive chips [1] - The company reported adjusted EPS of $1.67, surpassing the expected $1.64, while revenue decreased by 10% year-over-year to $2.44 billion, which was still above estimates [1] - CFO Richard Puccio acknowledged ongoing macroeconomic uncertainty but noted a steady increase in orders, particularly in the automotive sector [2] Group 1 - Demand for semiconductors in the automotive sector significantly contributed to the company's performance [1] - The company experienced a historic revenue decline in fiscal 2024 due to unprecedented customer inventory challenges, but remains cautiously optimistic for fiscal 2025 [2] - For the first quarter of 2025, Analog Devices anticipates adjusted EPS of $1.53, slightly below forecasts, and predicts revenue of $2.35 billion, aligning with expectations [2] Group 2 - Shares of Analog Devices rose by 3% following the announcement of better-than-expected results, contributing to a 16% increase in value for the year [2]

Core Insights - Analog Devices (ADI) reported revenue of $2.44 billion for the quarter ended October 2024, a decrease of 10.1% year-over-year, with EPS at $1.67 compared to $2.01 in the same quarter last year [1] - The revenue exceeded the Zacks Consensus Estimate of $2.41 billion by 1.51%, and the EPS also surpassed the consensus estimate of $1.64 by 1.83% [1] Revenue Performance by Segment - Consumer revenue reached $379.69 million, exceeding the average estimate of $340.39 million by nine analysts, reflecting a year-over-year increase of 30.3% [3] - Communications revenue was reported at $275.57 million, slightly above the average estimate of $270.29 million, but showed a year-over-year decline of 19% [3] - Automotive revenue stood at $716.96 million, surpassing the average estimate of $661.70 million, with a year-over-year decrease of 2% [3] - Industrial revenue was reported at $1.07 billion, below the average estimate of $1.13 billion, marking a year-over-year decline of 20.9% [3] Stock Performance - Over the past month, shares of Analog Devices have returned -2.9%, contrasting with the Zacks S&P 500 composite's increase of 3.2% [4] - The stock currently holds a Zacks Rank 4 (Sell), indicating potential underperformance relative to the broader market in the near term [4]

分组1 - Analog Devices reported quarterly earnings of $1.67 per share, exceeding the Zacks Consensus Estimate of $1.64 per share, but down from $2.01 per share a year ago, representing an earnings surprise of 1.83% [1] - The company posted revenues of $2.44 billion for the quarter ended October 2024, surpassing the Zacks Consensus Estimate by 1.51%, but down from $2.72 billion year-over-year [2] - Analog Devices has surpassed consensus EPS estimates four times over the last four quarters and has also topped consensus revenue estimates four times during the same period [2] 分组2 - The stock has gained approximately 12.6% since the beginning of the year, while the S&P 500 has increased by 25.5% [3] - The current consensus EPS estimate for the upcoming quarter is $1.58 on revenues of $2.36 billion, and for the current fiscal year, it is $7.47 on revenues of $10.28 billion [7] - The Zacks Industry Rank for Semiconductor - Analog and Mixed is currently in the bottom 35% of over 250 Zacks industries, indicating potential underperformance compared to higher-ranked industries [8]

About this content About Oliver Haill Oliver has been writing about companies and markets since the early 2000s, cutting his teeth as a financial journalist at Growth Company Investor with a focusing on AIM companies and small caps, before a few years later becoming a section editor and then head of research. He joined Proactive after a couple of years freelancing, where he worked for the Financial Times Group, ITV, Press Association, Reuters sports desk, the London Olympic News Service, Rugby World Cup ...

Revenue Performance - Fourth quarter revenue exceeded $2.4 billion, showing sequential growth across all end markets[2] - Fiscal 2024 revenue reached over $9.4 billion, with operating cash flow of $3.9 billion and free cash flow of $3.1 billion[2] - Revenue for the three months ended November 2, 2024, was $2,443,205, a decrease of 10% compared to $2,716,484 for the same period in 2023[22] - Total revenue for the three months ended November 2, 2024, was $2,443,205,000, representing a 10% year-over-year decline from $2,716,484,000[29] - Total revenue for the twelve months ended October 28, 2023, was $12,305,539,000, a decrease of 23% year-over-year[29] - Revenue for the trailing twelve months ended November 2, 2024, was $9,427,157, with a quarterly revenue of $2,443,205 for the three months ended October 28, 2023[31] - The company expects revenue for the three months ending February 1, 2025, to be approximately $2.35 billion, with an operating margin of 22.0%[32] Profitability Metrics - Adjusted diluted earnings per share for the fourth quarter was $1.67, a decrease of 17% year-over-year[5] - Adjusted gross margin percentage for fiscal 2024 was 67.9%, down 460 basis points compared to the previous year[5] - Operating income for the three months ended November 2, 2024, was $569,392, compared to $634,415 for the same period in 2023, indicating a decrease of approximately 10%[22] - Net income for the three months ended November 2, 2024, was $478,072, down from $498,430 in the same period last year, representing a decline of about 4%[22] - Basic earnings per share for the three months ended November 2, 2024, was $0.96, compared to $1.00 for the same period in 2023[22] - Gross margin for the three months ended November 2, 2024, was $1,416,128, down from $1,646,716 in the prior year, reflecting a gross margin percentage decline[22] - Gross margin percentage for the three months ended October 28, 2023, was 60.6%, compared to 58.0% for the same period last year[30] - Adjusted operating income for the twelve months ended October 28, 2023, was $6,014,423, reflecting an adjusted operating margin of 48.9%[30] Shareholder Returns - The company returned over $2.4 billion to shareholders in fiscal 2024, including $1.8 billion in dividends[2] - The board declared a quarterly cash dividend of $0.92 per share, payable on December 20, 2024[10] Cash Flow and Assets - Net cash provided by operating activities for the twelve months ended October 28, 2023, was $4,817,634,000, which is 39% of total revenue[26] - Free cash flow for the twelve months ended November 2, 2024, was $3,122,066, representing 33% of revenue[31] - Cash and cash equivalents at the end of the period were $1,991,342,000[26] - Total current assets increased to $5,484,654 as of November 2, 2024, from $4,384,022 as of October 28, 2023, reflecting a growth of approximately 25%[24] - Total assets decreased to $48,228,277 as of November 2, 2024, from $48,794,478 as of October 28, 2023, indicating a reduction of about 1.2%[24] - Long-term debt increased to $6,634,313 as of November 2, 2024, compared to $5,902,457 as of October 28, 2023, representing an increase of approximately 12.4%[24] Market Segmentation - Industrial revenue decreased by 21% year-over-year to $1,070,978,000, accounting for 44% of total revenue[29] - Automotive revenue was $716,964,000, a slight decrease of 2% year-over-year, representing 29% of total revenue[29] - Consumer revenue increased by 31% year-over-year to $379,690,000, making up 16% of total revenue[29] Strategic Focus - The company plans to continue strategic investments in engineering, manufacturing, and customer experience to drive long-term growth[3] - The company plans to focus on investments in digital, software, cybersecurity, and artificial intelligence to enhance future growth opportunities[19] Operational Challenges - The company maintained operating margins above 40% despite unprecedented customer inventory headwinds[3] - Orders increased steadily in Q4, particularly in the Automotive end market, indicating a potential recovery[3] Tax and Expenses - The effective tax rate for the three months ended October 28, 2023, was 12.8%[30] - Operating expenses as a percentage of revenue for the three months ended October 28, 2023, increased to 37.3% from 34.7% in the previous year[30] - Acquisition-related expenses for the twelve months ended October 28, 2023, totaled $1,047,309[30]