Analog Devices(US:ADI)2023-11-21 18:24Financial Data and Key Metrics Changes - Fourth quarter revenue was $2.7 billion, with a year-over-year decline of 16% and a sequential decline of 12% [7][18] - Fiscal year 2023 revenue reached $12.3 billion, marking a 2% increase from the previous year, with EPS of $10.09, up 5% [7][17] - Operating margins for the fourth quarter were 44.7%, while gross margins were 70.2%, down from 73.6% the previous year [17][20] - The company returned a record $4.6 billion to shareholders in 2023, exceeding its 100% free cash flow return target [7] Business Line Data and Key Metrics Changes - Industrial sector represented 50% of quarterly revenue, declining 20% year-over-year and 19% sequentially, but achieved a 6% increase for the full year [18] - Automotive sector accounted for 27% of quarterly revenue, up 14% year-over-year, marking 12 consecutive quarters of double-digit growth [19] - Communications sector represented 13% of quarterly revenue, down 32% year-over-year, while Consumer sector represented 11% of quarterly revenue, down 28% year-over-year [19] Market Data and Key Metrics Changes - The company noted broad-based weakness across markets and geographies due to inventory adjustments and macroeconomic conditions [24][25] - Lead times for 95% of products are now normalized, with significant improvements in order rates and a reduction in cancellations [35][36] Company Strategy and Development Direction - The company is focused on maintaining operating margins in the low 40s while making strategic investments to capitalize on future market recovery [9][10] - The design win pipeline has expanded by double digits, with expectations of revenue synergy acceleration in 2025 [10] - The company plans to reduce CapEx significantly in fiscal 2024, down to between $600 million and $800 million, without compromising long-term growth [26][51] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate the current downturn, citing strong expense management and a diversified business model [8][9] - The inventory overhang is expected to persist through the first half of the fiscal year, but management anticipates a recovery in the second half [24][46] Other Important Information - The company ended the quarter with approximately $1 billion in cash and cash equivalents, with a net leverage ratio of 0.9x [21] - Operating cash flow for the year was $4.8 billion, with free cash flow at $3.6 billion, representing 29% of revenue [22] Q&A Session Summary Question: Inventory and Order Metrics - Management noted that inventory digestion is accelerating, with a reduction in cancellations and improved bookings, providing confidence in future performance [30] Question: Pricing Environment - Management indicated that pricing for existing products remains stable, with new product generations capturing more value [39] Question: OpEx and Gross Margins - Management expects gross margins to fall below 70% in the first half of the year, with OpEx projected to decrease slightly [42][43] Question: Industrial Sector Performance - Management acknowledged that the industrial sector has faced broader weakness, impacting revenue, but expects inventory adjustments to lead to recovery [46] Question: CapEx Strategy - Management explained the reduction in CapEx is a strategic decision based on current demand, while still planning to double internal capacity by 2025 [51][52] Question: Inventory Reduction Plans - Management plans to reduce inventory by approximately $200 million over the next three quarters, with sell-in to the channel being lower than sell-through [55]