ADI - Analog Devices, Inc.

Operator: Good morning, and welcome to the Analog Devices' Fourth Quarter Fiscal Year 2025 Earnings Conference Call, which is being audio webcast via telephone and over the web. I'd like to now introduce your host for today's call, Mr. Jeff Ambrosi, Head of Investor Relations. Sir, the floor is yours. Jeff Ambrosi: Thank you, Gigi, and good morning, everybody. Thanks for joining our fourth quarter fiscal 2025 conference call. Joining me on the call today is ADI's CEO and Chair, Vincent Roche; and ADI's Chief Financial Officer, Richard Puccio. For anyone who missed the release, you can find it and relating financial schedules at investor.analog.com. The information we're about to discuss includes forward-looking statements which are subject to certain risks and uncertainties, as further described in our earnings release, periodic reports and other materials filed with the SEC. Actual results could differ materially from the forward-looking information as these statements reflect our expectations only as of the date of this call. We undertake no obligation to update these statements except as required by law. References to gross margin, operating and nonoperating expenses, operating margin, tax rate, earnings per share and free cash flow in our comments today will be on a non-GAAP basis, which excludes special items. When comparing our results to our historical performance, special items are also excluded from prior periods. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures and additional information about our non-GAAP measures are included in today's earnings release. References to earnings per share are on a fully diluted basis. And with that, I'll turn the call over to ADI's CEO and Chair, Vincent Roche. Vincent Roche: Thanks, Jeff, and good morning, everyone. So our fourth quarter results reflect the ongoing business recovery with continued growth in revenue and earnings per share, both of which finished above the midpoint of our outlook. Now widening the aperture to our fiscal '25. Revenue accelerated throughout the year and returned to meaningful growth despite the persistent macro and geopolitical headwinds. All of our end markets increased by double digits, reflecting both cyclical and company-specific drivers, including strong execution against our Maxim revenue synergy targets. Top line strength, combined with margin expansion, resulted in earnings per share growth of more than 20% in fiscal '25. Our strong operating results and reduced CapEx enabled us to generate record free cash flow of more than $4 billion or 39% of revenue. We also returned more than $4 billion to our shareholders, supporting an 8% dividend increase as well as share count reduction. Innovation has always been integral to ADI's brand and our value proposition, forming the foundation for strong financial performance. Consequently, R&D activities received capital prioritization with record investments made in FY '25 to advance our leadership in analog, mixed signal and power technologies. We've also intensified our focus on software, digital and artificial intelligence capabilities to strengthen our core franchise, enabling us to address increased customer complexity and expedite their innovation cycles and time to market. Our comprehensive technology portfolio, combined with extensive application domain expertise uniquely positions us to proactively identify and resolve the most complex engineering challenges for our customers. As a result, we're realizing stronger value capture as reflected in the increase in our average selling prices, particularly in new products, where ASPs significantly exceed those of legacy offerings. Beyond product innovation, our dedication to customer success encompasses ongoing investments to streamline and accelerate their product development activities. To this end, we are rapidly expanding our development support environment from research to deployment with a combination of proprietary ADI tools and leading ecosystem and open-source platforms. Furthermore, following the acquisition of Maxim, we've allocated over $3 billion in capital expenditures to substantially enhance capacity, optionality and resiliency for our customers supporting our long-term vision for sustained growth. Now as you've seen, our relentless focus on driving customer success translates to strong results and a diverse design pipeline that grew more than 20% in fiscal '25. So I'd like to share a few examples of our success this past year. Within industrial, every sector grew, driven by improved cyclical dynamics and powerful secular trends such as AI, automation, and the drive for efficient and reliable energy generation, transmission and distribution. For example, the exponential growth in demand for AI and high-performance compute drove a record year in our automatic test equipment business, building upon and extending our strong position in the SoC and memory test markets. We anticipate further growth in FY '26 due to our expanding design pipeline industry transitions to HBM4 and expected double-digit growth in hyperscaler CapEx. In '25, robust automation design and growth was propelled by the burgeoning demand for enhanced productivity, efficiency and reliability across key sectors such as manufacturing, logistics and health care. This momentum was particularly evident within our Robotics segment, which saw notable expansion as customers increasingly prioritized automation to streamline operations and improve business outcomes. As highlighted in our previous quarter, we foresee tremendous long-term opportunity as advancements in AI fuel the emergence of content-rich humanoid robots positioning ADI at the forefront of the next wave of robotics innovation. Within health care, the proliferation of robot-assisted surgical systems represents a vibrant vector of growth alongside our Imaging and Diagnostics segments. Additionally, we expect growing demand for our suite of diabetes management solutions to continue to contribute to growth in FY '26. Energy was our fastest-growing industrial segment this past year, driven by high demand from the industrial, transportation and data center sectors. Design and activity was especially strong for grid management and battery storage systems, and we anticipate continued growth in '26 and well beyond. Aerospace and Defense achieved record results, and we expect further growth in the year ahead, driven by our expanding portfolio of advanced sensor, mixed signal and power solutions, coupled with an increasingly strong opportunity pipeline. We also expect to maintain our strong presence in the growing low earth orbit satellite market. Turning to automotive. Advances in autonomous driving and cabin digitalization led to a record year for ADI in fiscal '25 with growth outpacing light vehicle production. Our intelligent audio and video connectivity solutions, which avoid bulky and expensive cabling, drove multiple new growth awards across GMSL, A2B and our signal processing and safe power portfolios. Building on this success, our new E2B Ethernet bus is expanding our market, simplifying customer systems, boosting power efficiency and lowering costs as it gains traction. In the communications sector, AI CapEx investment led to a record year for our data center segment with design and activity more than doubling. Strong demand for high-throughput connectivity and power delivery solutions support our confidence in continued growth through '26. Wireless communications is one of the few areas of softness in '25 but we believe customers have completed their inventory digestion phase and that the market bottomed during the year. In addition, we see a positive impact of new products such as our software-defined AI-enabled macro base station on a chip solution for which we secured design wins from leading OEMs and service providers and see additional opportunity beyond telecommunications in private industrial networks as well as other secure communications applications. And finally, as consumer markets rapidly evolve, we're expanding our SAM and growing a diverse pipeline by delivering integrated solutions in hearables, wearables, gaming, AR, VR and many related areas. For example, our new Acoustics platform combines analog, power, digital software and machine learning for advanced environmental awareness and adaptive noise cancellation. We've secured design wins for these solutions in consumer and health care segments, enabling ADI to triple the value generated over legacy designs. We've also captured several new power management design wins in premium handsets and smart glasses in FY '25, positioning us for further growth in '26. So in summary, our diversified business model has proven agile and consistently capable of generating superior outcomes reflected in both last year's resilient margins and this year's strong rebound in profitable growth. While we're mindful of the macro environment and the continued impacts of tariffs and trade uncertainty, we remain confident in our growth in FY '26 and beyond as we continue to leverage our key differentiators, namely, an enviable technology leadership position at the intelligent edge as it becomes a center of gravity for a host of secular growth markets, unrivaled application domain expertise and the trusted brand that we have developed and strengthened with our customers over the decades. And so with that, I'll pass it over to Rich. Richard Puccio: Thank you, Vince, and let me add my welcome to our fourth quarter earnings call. I'll start with a brief overview of our full fiscal '25 financial performance. Revenue for the year came in at just over $11 billion, up 17% from fiscal '24, with double-digit growth across all end markets. Gross margin finished at 69.3%, up 140 basis points driven by higher utilizations. Operating margin finished up 100 basis points at 41.9% and includes the headwind associated with the normalization of variable comp. All total, earnings per share of $7.79 increased 22% versus fiscal 2024. Now on to our fourth quarter results. Revenue in the fourth quarter came in toward the higher end of our outlook at $3.08 billion growing 7% sequentially and 26% year-over-year. Industrial represented 46% of our fourth quarter revenue, finishing up 12% sequentially and 34% year-over-year. The stronger than seasonal results underpins the cyclical momentum we see across industrial as well as the secular growth unfolding in AI infrastructure, which drove record quarter for our ATE business. For the full year, Industrial increased 15% with growth across every major application, including record years for aerospace and defense and ATE. Automotive represented 28% of quarterly revenue, finishing up 1% sequentially and up 19% year-over-year. Double-digit year-over-year growth continues to be driven by our leading connectivity and functionally safe power solutions. For the full year, automotive increased 16% to an all-time high, driven predominantly by our higher content and share position across Level 2+ ADAS systems globally. Communications represented 13% of quarterly revenue, finishing up 4% sequentially and 37% year-over-year. Our data center segment surpassed the $1 billion run rate this quarter and on a year-over-year basis has now grown more than 50% for 3 consecutive quarters, fueled by continued strength in the AI infrastructure market. Wireless revenue was up double digits year-over-year for the second straight quarter, owing to improving cyclical dynamics. For the full year, communications was our fastest-growing market, increasing 26% driven by our data center segment, which had a record year, while wireless revenue was flat. Lastly, consumer represented 13% of quarterly revenue, finishing up 7%, both sequentially and year-over-year. For the full year, consumer increased 19%, driven by strong growth in handsets, gaming and a record year for our hearables and wearables segment. Now on to the rest of the P&L. Fourth quarter gross margin was 69.8%, up 60 basis points sequentially and 190 basis points year-over-year, driven by higher utilization and favorable mix. OpEx in the quarter was $809 million, resulting in an operating margin of 43.5%, up 130 basis points sequentially and up 240 basis points year-over-year. Non-operating expenses finished at $60 million, and the tax rate for the quarter was 12.7%. All told, EPS was $2.26, up 10% sequentially and 35% year-over-year. Now I'd like to highlight a few items from our balance sheet and cash flow statements. Cash and short-term investments finished the quarter at $3.7 billion, and our net leverage ratio decreased to 0.9. As I discussed previously, we continue to build die bank buffers for our fastest-growing applications. As such, our inventories were higher by $59 million sequentially while days of inventory declined by 1 to 159. Channel inventory increased but remains lean at approximately 6 weeks. Fiscal '25 operating cash flow and CapEx were $4.8 billion and $0.5 billion, respectively, resulting in record free cash flow of $4.3 billion or 39% of revenue, up from 33% in 2024. In total, we returned $4.1 billion to shareholders through dividends and share repurchases. As a reminder, we target 100% free cash flow return over the long term, using 40% to 60% for our dividend and the remainder for share count reduction. Now moving on to our first quarter of 2026 outlook. Revenue is expected to be $3.1 billion, plus or minus $100 million. Operating margin at the midpoint is expected to be 43.5%, plus or minus 100 basis points. Our tax rate is expected to be 12% to 14%. And based on these inputs, adjusted EPS is expected to be $2.29, plus or minus $0.10. In closing, fiscal 2025 was a strong year, highlighted by a return to growth, margin expansion and record free cash flow. Importantly, I'm confident in our ability to continue navigating macro and geopolitical challenges and believe we are well positioned to drive further profitable growth in 2026. With that, I'll give it back to Jeff for Q&A. Jeff Ambrosi: All right. Thank you, Rich. Now let's get to our Q&A session. [Operator Instructions] With that, can we have our first question, please. Operator: [Operator Instructions] Our first question comes from the line of Vivek Arya from Bank of America Securities. Vivek Arya: I had a near and a medium term. On the near term, I think you're guiding Q1 slightly up, which is a little bit above seasonal. So I was hoping you could give us some color by segment where you're seeing the strength because I do think industrial was slightly below what you had thought in Q4. So just any dynamics going into Q1. And then if we zoom out, when -- say, I mean, if I were to just annualize Q1 guidance, that suggests a very strong kind of 12%, 13% sales growth year in fiscal '26. And I was really hoping to get your perspective as you start the new fiscal year on what you're seeing from a broader macro perspective and whether this kind of growth rate is possible in fiscal '26? Vincent Roche: Sure. Thanks, Vivek. Rich? Richard Puccio: Vivek, I'll take the first part of your question. So Q1, which is our weakest sequential quarter with normal seasonality typically down mid-single digits. And our outlook is up slightly quarter-over-quarter, reflects our seventh straight quarter of above seasonal growth. And another key point is additionally, our outlook assumes sell-in and sell-through are equal. So from an end market color perspective, industrial, we expect to be up mid-single digits above seasonal. We expect auto to be down mid-single digits below seasonal, where we continue to see some risk there around tariff and some of the macro environment. Comms, we expect to be up 10% above seasonal. Again, as Vince mentioned, we're seeing real strength in the AI infrastructure and demand for our data center products. And then consumer seasonally down low double digits. And then all markets, we expect to be up year-over-year. Vincent Roche: Yes. So maybe if we look year-over-year, Vivek, so we believe we're well positioned to see broad-based growth in '26. And I think cyclical as well as many idiosyncratic factors giving us tailwinds. My expectation is that in '26, industrial and communications will lead the charge. I think when you look at industrial and comms, the -- as I said, the cyclical dynamics are good, bringing inventories out there. I think both of those markets bottomed some quarters ago. Data center, which is going to see, again, we believe, a strong surge in CapEx. We've got good exposure to that sector, and it's 2/3 of our comms business at this point in time. Aerospace and defense as well as ATE, which are together about 1/3 of the industrial market. We've got strong content growth stories in both. And coupled with the AI demand surge in the ATE business, I think, is very, very well positioned. And I think as well in consumer, we talked a little bit on the -- in the prepared remarks there about the higher content in key applications. And so we've got tremendous diversity in that business at a level we never had before as a company. So both in applications and customers and platforms, we're well positioned. Last but not least, if I talk a little bit about the auto sector. It's been -- I think SAAR has really been flat now for quite a while. We see that persist in '26. And given that we've been able to show against our 10% content growth per annum, we see that continue given the strength of the pipeline that we've got. But all that said, we've got a very uncertain macro environment. But my expectation is all the end markets will be up despite the outlook from a macro perspective. Operator: One moment for our next question. Our next question comes from the line of Joe Moore from Morgan Stanley. Joseph Moore: Great. Speaking of autos, I think you guys had indicated when you guided the quarter that you'd be slightly down, you ended up slightly up. Can you talk about what's coming in a little bit better? And you guys have been pretty good about helping us understand pull forwards and things like that. Any sign of any activity now? Richard Puccio: Sure, Joe. I'll take that one. So for us, auto has been our strongest market, right, double-digit CAGR through cycle driven by secular content gains, compounded by our share gains, particularly in connectivity and power for ADAS and next-gen infotainment systems. Here, I would note we've had pretty significant share gains in China, which where you see a lot of the light vehicle share getting increased. So that's been beneficial. Near term, the market has been more resilient than we and many have predicted, right, evidenced by the stronger volumes on vehicles. We do think some of the upside we've seen in the volumes in our business this year was tariff and policy related. We've talked in prior calls about our view that there might have been some pull-ins. I can't be precise or certain, but we did make that estimation. And given this, we did approach Q4 with some caution and expected to see -- I think I said on the last call, we thought we'd see some of this pre-buying unwind in the fourth quarter. That did not appear to happen to us. Our results were fairly seasonal and bookings were normal with a book-to-bill just below 1, which is actually pretty typical for Q4. We're still being a bit cautious on the market as it's unclear how the tariffs and volatilities we saw will ultimately impact us and our customers. And also just given short lead time orders, visibility tends to be pretty low right now. So as we think about our Q1 outlook is a sub-seasonal quarter or down mid-single digits sequentially, but up year-over-year. And given the content gains in this market and the positive design win traction that Vince mentioned, we do think fiscal '26 can be another strong year. Joseph Moore: Very helpful. Operator: One moment for our next question. Our next question comes from the line of Stacy Rasgon from Bernstein Research. Stacy Rasgon: I wanted to ask about gross margins. You sort of talked about being at 70% gross margins around $3 billion. So you're sitting over there and you're still -- I mean, even in the quarter, you came in a little below 70%. As far as I can tell, the guidance implies gross margins relatively flattish around that 70% range, you can let me know if that's right or not. But I'm just wondering why we're not seeing more leverage on the gross margin line, especially as utilizations are going up and everything else. Like why shouldn't we expect that more leverage on gross margins? Richard Puccio: Stacy, I'll take that one. So obviously, with our industry-leading gross margins, where you can see the impact that we get from the innovation premium, we did increase quarter-over-quarter and year-over-year, and we did have higher utilization and some favorable mix. We didn't get to the 70% as planned as the mix component wasn't as strong as we were expecting. As we've talked about, we had a much stronger result in auto, which kept the industrial mix a bit lower than we planned, and that's what kept us from getting all the way to the 70%. Now if I look out to Q1, the gross margin percent for us is typically lower in Q1 seasonally, given the annual shutdown factories for required maintenance and around the holidays in conjunction with customer shutdowns. However, based on our outlook, we are anticipating that the higher industrial mix in Q1, which we think will offset seasonal the seasonal component and hold gross margin flat. So you're right, embedded is a flattish gross margin where we get an offset from higher mix, which will offset the pressure from the shutdowns. And then I guess -- and the last piece, as we think about the continued go forward, Stacy, and at this revenue level, one of the things I'd like to remind is we did have a pretty significant capacity expansion while we were addressing our resilience over the last several years. And so it will take us higher revenue dollars to continue to expand beyond 70%. And also, as we've talked about, the continued movement in mix. And given the strength we see in industrial into going into '26, we expect that, that share of our business will continue to increase. Vincent Roche: Yes. I think just one other piece of color, Stacy. The pricing is in good shape. So it's really a question of mix and continuing to push the utilizations. Jeff Ambrosi: Thank you, Stacy. We move onto our next question, please. Operator: One moment for our next question. Our next question comes from the line of Christopher Danely from Citi. Christopher Danely: Just to follow-up on Stacy's question. Has the relative gross margin levels, have those changed at all between the end markets? Have any of them gone up or down versus the corporate average, I guess, just to cut to the chase, is -- have the auto gross margins gotten a little worse relative to the corporate average over the last like 2, 3 years or anything else changed? Richard Puccio: Chris, I would say that the way it was characterized the individual end market margins versus average has not changed, not in any meaningful way. Operator: One moment for our next question. Our next question comes from the line of Timothy Arcuri from UBS. Timothy Arcuri: Vincent, you talked about Maxim revenue synergies. Can you update us on that? I know you said you're on track, but maybe you can give us a sense of where that stands. And then Rich, can you tell us sort of what your sense of like a normal fiscal Q2? It seems like normal seasonal in fiscal Q2 is up like mid-singles. Is that sort of how you think about a typical fiscal Q2? And then maybe like what are the puts and takes as you kind of head into fiscal Q2? Vincent Roche: Yes. So Tim, I'll start with the synergies. So we began the conversion process, the conversion of the pipeline in '24 and began in earnest in '24. It contributed tens of millions of dollars to ADI's top line in '24. It's clearly accelerated in '25, and it's in the hundreds of millions against our $1 billion target by '27. And we expect an even stronger contribution in '26 given the momentum that we have in terms of new products and cross-sell. So we're seeing -- as we said, when we acquired Maxim, we saw tremendous complementarity in terms of some technology niches that Maxim filled, particularly in areas like power, these connectivity structures that we use in automobiles and now in industrial products. So the complementarity actually works for ADI right across the spectrum of applications, but particularly although as I've just said, consumer, health care and data center. So I think we are well on track to meet our commitment, possibly even a little earlier than what we thought. Rich, do you want to take that? Richard Puccio: Yes. Tim, you're absolutely right. Our Q2 tends to be our seasonally strongest quarter where we tend to be up mid-single digits. I think that's the right way to think about it. Jeff Ambrosi: Thank you, Tim. We move onto our next question, please. Operator: One moment for our next question. Our next question comes from the line of C.J. Muse from Cantor Fitzgerald. Christopher Muse: Vince, in your prepared remarks, you talked about ADO drivers led by AI in the data center. And I was hoping you could perhaps speak a bit more to a framework that we should be thinking about across both industrial and comms. Obviously, you dominate semi test analog. You've got some real design wins on the optical and power side. And then you also spoke about energy strength. So is there kind of a percentage of mix that we should be thinking about that should be growing significantly faster than the rest of your business? And if there's kind of numbers around that, that would be very helpful. Vincent Roche: Yes. Maybe I'll just give some color and Richard can give some numbers. Yes. So look, specifically when we talk about AI, there's the data center and the ATE businesses. And if I look at data center in '25, it grew about 50% and the ATE business, which also benefits from the skyrocketing compute intensities, the new memory types that are being used as well, new memory chips. That business -- so the ATE business grew at 40% last year. And we can -- we believe we'll see that growth continue in '26. If I just talk about where we are, data center, I think as Rich said in the prepared remarks, is running about $1 billion run rate at this point in time. And there are really 2 primary sectors there. One is at the electro-optical interface, and we're seeing tremendous upsurge in demand for 800 gig. Now we're seeing 1.6 terabit electro-optical interfaces that require very, very sophisticated power management and control systems. And then there's power more generally, I think, in the areas of protection, we're beginning to see a shift in very, very high-voltage technologies that require very sophisticated monitoring and control. There's power conversion and power delivery. And we're seeing our portfolios in those 3 areas gain significant traction. On the delivery side, we had mentioned before, vertical power. That technology now is beginning to be adopted broadly. So we're at the kind of -- we use the term in the electronics industry, we're at the knee of the curve. We're beginning -- I think we're in place to see exponential growth there. ATE, $800 million run rate. And as I said, very, very well positioned with all the key players, both the vertically integrated players as well as the OEMs in chip testing. And as the shift to HBM4 takes place, we're going to see higher pin count, more complexity, more speed, basically more instrumentation compute density in our chips. So I think we're in a good place from a customer engagement standpoint, from a technology standpoint. My sense is we should see double-digit growth in both those areas over the next few years. Rich, do you want to add anything? Richard Puccio: I will add my concurrence on your view about the outlook for the next few years in these areas. I look at -- if you look at the external factors, particularly around the data center piece and the high-performance compute, the like forecast continue -- forecast from all of the hyperscalers and the big buyers in the space continue to go up. And even recently, several of the large hyperscalers have added even further increases to their CapEx plans. So I do think that, that near medium-term spend is going to continue, and we should be a big beneficiary given our strength there. Jeff Ambrosi: Thank you, C.J. We move onto our next caller, please. Operator: One moment for our next question. Our next question comes from the line of Harlan Sur from JPMorgan. Harlan Sur: One of the other strong dynamics among several, which separates ADI from peers is obviously the strong exposure to aerospace and defense. This has been a growth area for ADI during this last downturn. I think the business is now driving well over $1 billion of annualized run rate revenues or roughly greater than 10% of your total revenues. It grew strongly double digits in fiscal '25. Does the team anticipate continued strong double-digit growth in fiscal '26? And maybe help us understand like what are some of the ADI-specific product cycles here that's going to continue to drive the strong growth profile going forward? Vincent Roche: Yes. Thanks very much for the question. So yes, I'd say the journey for ADI in that aerospace and defense market really took off in earnest when we acquired Hittite. And we got Hittite's really high-quality RF and microwave portfolio, which is central to all the communications activities right across the aerospace and defense market from defense systems, and every type of defense system you can imagine to satellite communications. The primary portfolios we have there are obviously microwave and RF sensors, the highest performance conversion products that we build on the precision and high -- very, very high-speed signal processing side are central. And increasingly, when we acquired LTC and Maxim, we were able to cross-connect with all those signal processing technologies, the power tech, all the power management technology. So if you look then at the market drivers, you've got -- the world isn't becoming any more peaceful. So there's going to be increasing capital deployment to build defense systems globally. We're seeing very strong demand and increasing demand in Europe and beyond. And we work with all of the primary OEMs. And so that -- all that coupled with increasing ASPs. I mean some of these products we built attract tens of thousands of dollars per system. So I think that business has the capacity by the end of the decade to more than double. Jeff Ambrosi: Thank you, Harlan. We move onto our next question. Operator: One moment for our next question. Our next question comes from the line of Joshua Buchalter from TD Cowen. Joshua Buchalter: Congrats on the strong results. I wanted to follow up on the comments about fiscal 2Q being a seasonal plus mid-single-digit percent. Could you maybe speak to what's driving the confidence in the visibility there? Any metrics you're able to give on lead times? And then bigger picture, how is your visibility looking forward changed as the mix has changed? Like do you think compared to a couple of years ago, there's more of your exposure tied to ADO drivers like aerospace and defense and data center, and that's increasing your visibility? I'd just be curious to hear because you mentioned there was some uncertainty on the shape of the year in the press release, I'd be curious to hear how you're feeling about visibility. Richard Puccio: Thanks, Josh. So first, I didn't guide for Q2. I confirm what the historical seasonality is. As we've been talking about, right, we still have -- don't have a ton of visibility beyond current quarter plus 1, right? As we've talked about, the lead times are -- most of our products have lead times sub-13 weeks. So we get a lot of orders in quarter. We get a lot of quarters -- a lot of orders with short lead times, which does reduce some of that visibility. So I think on the first part of your question, I don't think we've necessarily seen an improvement in visibility over the last 2 years. Although I do agree, I think that the -- we've now got broad strength in a number of the ADO areas that Vince described. But given where we are from an inventory on hand position as well as our cycle times, we're not getting a ton of outside of a quarter visibility. Jeff Ambrosi: Thank you, Josh. And we'll move to our last question, please. Operator: One moment for our next question. Our next question comes from the line of Tore Svanberg from Stifel. Tore Svanberg: Yes. So Vince, ADI has been always very thoughtful about allocating R&D dollars and the economy is changing in the front of eyes structurally quite significantly here. So how are you thinking about prioritizing your R&D spend right now? And are there any areas you would like to double down in and perhaps areas you would like to deemphasize as a company? Vincent Roche: Yes. Thanks, Tore. Yes. When I look at the analog space in the core analog business, we continue to push the edges of signal processing, data conversion systems and precision as well as very, very high speed. I think power management for ADI is still an opportunity with a lot -- a much, much bigger growth story. So that is a place that as we've gone through our strategy planning cycle in the last few quarters here, we're doubling down on for sure. The -- there are areas as well of our digital portfolio where we see very, very strong niches for what we do in terms of, for example, low power, low latency, these heterogeneous compute structures as well as algorithmic technologies. So I mentioned during the prepared remarks how we're enhancing the functionality of our core analog technologies by using machine learning techniques, for example, in base stations, in the consumer areas as well. So -- but I think most of what we do is making sure that we have the platforms to be able to compete globally across all the geographies, across the spectrum of markets that we find most attractive, solve the most important problems. And what I can tell you is that our customers are asking us to do more and more to tame their complexity and help them speed up their innovation cycle. So that's -- when we think about the investment portfolio. We're very opportunity-rich. And we've got a very high-quality problem, which is picking the most valuable opportunities in that spectrum of -- let's repeat with opportunity. Jeff Ambrosi: Thank you, Tore. Thanks, Tore, and thanks, everyone, for joining us this morning. A copy of this transcript will be available on our website and all available reconciliations and additional information can also be found in the Quarterly Results section of our Investor Relations website. Thank you for your continued interest in Analog Devices and Happy Thanksgiving. Operator: This concludes today's Analog Devices' conference call. You may now disconnect.

Operator: Good morning, and welcome to the Analog Devices Third Quarter Fiscal Year 2025 Earnings Conference Call, which is being audio webcast via telephone and over the web. I would like to now introduce your host for today's call, Mr. Richard Puccio, Executive Vice President and Chief Financial Officer. Sir, the floor is yours. Richard Puccio: Thank you, Josh, and good morning, everybody. Thanks for joining our third quarter fiscal 2025 conference call. Joining me today on the call is ADI's CEO and Chair, Vincent Roche. For anyone who missed the release, you can find it and related financial schedules at investor.analog.com. Information we are about to discuss includes forward-looking statements, which are subject to certain risks and uncertainties as further described in our earnings release and our periodic reports and other materials filed with the SEC. Actual results could differ materially from the forward-looking information as these statements reflect expectations only as of the date of this call. We undertake no obligation to update these statements except as required by law. References to gross margin, operating and non-operating expenses, operating margin, tax rate, EPS, and free cash flow in our comments today will be on a non-GAAP basis, which excludes special items. When comparing our results to our historical performance, special items are also excluded from prior periods. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures and additional information about our non-GAAP measures are included in today's earnings release. References to EPS are on a fully diluted basis. Okay. With that, I'll turn it over to ADI's CEO and Chair, Vincent Roche. Vincent Roche: Thank you, Rich, and a very good morning to you all. While our third quarter revenue and earnings exceeded our expectations, and for the second quarter in a row, we achieved double-digit year-over-year growth across all of our end markets. While geopolitical and macro uncertainty continues to cloud the outlook, we believe ADI's innovation-driven, resilient, highly diversified business model positions us to continue to successfully navigate these challenges. The accelerated recovery of our industrial business encompassing instrumentation, automation, healthcare, aerospace and defense, and energy management is a case in point. As you've heard us detail on prior calls, our industrial recovery began in the aerospace and defense, and instrumentation sectors, driven by our strong product and customer portfolio positions, as well as spending growth in defense and AI infrastructure. We're now seeing double-digit year-over-year growth across the entire industrial portfolio. For today's call, I'm going to focus on our billion-dollar-plus industrial automation business, which was the last sector to return to double-digit growth. Its market dynamics and trajectory are expected to bring long-term expansion. Companies have long invested in automation systems to gain first-order productivity efficiency and quality benefits. Today, a new wave of adoption is being driven by economic, demographic pressures and enabled by the potential to transform and accelerate business through leverage of real-time intelligent edge data. ADI's high-performance technology stack and deep domain expertise are crucial to customer success in this highly sensed, securely connected, software-driven era. And the new robotic modalities that are emerging, it's predicted that the convergence of compounding macro and AI-enabled technology factors will drive robust, double-digit growth within the robotics market for the foreseeable future. ADI's ability to deliver exceptionally accurate physical representations and enable faster insights at the edge will become even more essential as the market migrates to next-generation autonomous robotic systems. Our long history in robotics has given us a deep understanding of the sector's hardest problems and the greatest opportunities. We're investing to maintain our performance edge in analog while capturing increasing levels of system value. In addition, we're building ecosystem partnerships and deploying experts and an increasingly broad suite of technologies to enrich and deepen our customer collaborations. We expect this multipronged approach to unlock significant ASP and some expansion for our automation business, following the proven path we've successfully in other markets such as aerospace and defense and healthcare. Now let me share a few examples of our strategy in action. Earlier this year, we partnered with Teradyne Robotics. Our solutions for precision positioning and dynamic motion control are helping Teradyne increase their value proposition to the logistics industry through higher performance cobots and autonomous mobile robots or AMRs. In the agricultural sector, where labor shortages are chronic, high precision robotic systems are increasingly filling the gap. In addition, these systems' enhanced data collection capabilities are enabling higher crop yields while reducing water and chemical usage levels. A growing portion of our robotics revenue is coming from this sector, as we help customers solve their toughest challenges through our sensing, connectivity, and energy management solutions. In the healthcare sector, robot-assisted surgery systems minimize invasiveness and improve patient outcomes through enhanced system precision. And we're leveraging our leading precision technology franchise to successfully attach more of our power management, connectivity, and sensing content to the more innovative systems being designed and deployed. This year, we're achieving robust growth and expect continued momentum as the proliferation of automated surgical procedures further expands our opportunities in this space. Overall, the near and medium-term outlook for robotics is compelling, supported by increasing revenue and a burgeoning opportunity pipeline. From this strong foundation, extending into the next promising era of robotics, namely humanoid and other highly dexterous robot form factors, and creating a potentially exponential growth opportunity for ADI. Our content in a humanoid robot is likely to be several thousands of dollars, that's basically a 10x increase over the content in today's cutting-edge AMRs. The primary reason for this content multiplier is the explosion in sensor and actuator counts. Every joint and point of contact requires accurate sensing and precision motor control, and every sensor and actuator drives a signal chain and power management opportunity for ADI. To further capture this flourishing opportunity, we're investing in higher-level application-specific solutions that integrate multiple sensing modalities, such as pressure, vibration, depth, acoustics, vision, and positioning, with high accuracy, ultra-low power signal chains, functionally safe power management, and AI algorithms powered by robotics foundation models. Simultaneously, we're collaborating with NVIDIA on a range of digital twin simulation programs and reference designs for humanoid and other robotic systems to accelerate development and AI training for our customers. This work is particularly relevant for high-value applications such as dexterous manipulation of cable assemblies in data centers and, of course, in automotive manufacturing to name just one. We are combining ADI's unique sensor expertise and our latest advances in robotics policy training and techniques to enhance realism in NVIDIA's Isaac Sim and substantially shorten our customers' innovation timelines. So in summary, we're capitalizing on growth in advanced robotics today and investing to capture even more value in the future. Ultimately, the strategy, investments, and customer impact of our robotics business is a microcosm of our approach across ADI, namely uncovering and tackling the hardest innovation challenges at the intelligent physical edge and leveraging our industry-leading technology portfolio and expertise to solve them. As we turn our attention to the end of fiscal 2025 and the beginning of the new fiscal year, we're focused on executing our strategy and capitalizing on cyclical and idiosyncratic momentum. Despite the geopolitical and macro turbulence, we remain undeterred and excited by the tremendous growth opportunities that we see over both the near and long terms. And with that, I'm gonna pass it back to Rich. Richard Puccio: Thank you, Vince. Now on to our third quarter results. Revenue of $2.88 billion came in above the high end of our outlook, up 9% sequentially and 25% year over year. Industrial represented 45% of our third quarter revenue, finishing up 12% sequentially and 23% year over year. Our industrial recovery has continued with sequential growth across all sub and regions. Year over year growth accelerated across all major applications, led by our automatic test equipment business fueled by increasing AI investment. Additionally, our aerospace and defense business had a record quarter. Automotive represented 30% of quarterly revenue, finishing down 1% sequentially and up 22% year over year. Double-digit year-over-year growth continues to be driven by our leading connectivity and functionally safe power solutions. Communications represented 13% of quarterly revenue, finishing up 18% sequentially and 40% year over year. Our wireline and data center business, which is roughly two-thirds of total communications, grew double digits sequentially and year over year as increasing AI demand continues. Wireless also grew double digits both sequentially and year over year. And lastly, consumer represented 13% of quarterly revenue, finishing up 16% sequentially and 21% year over year, marking the fourth straight quarter of double-digit year-over-year growth. We continue to see strength across handsets, gaming, hearables, and wearables. Now onto the rest of the P&L. Third quarter gross margin was 69.2%, and operating margin was 42.2%, up 100 basis points sequentially and year over year. Non-operating expenses finished at $57 million and the tax rate for the quarter was 11.9%. All told, EPS was $2.05 above the high end of our guided range and up 30% year over year. Now I'd like to highlight a few items from our balance sheet and our cash flow statements. Cash and short-term investments finished the quarter at $3.5 billion and our net leverage ratio remained virtually flat at 1.1. Inventory increased $72 million sequentially in support of the cycle recovery. Days of inventory declined to 160, and channel weeks ticked lower. We are continuing to execute our strategy of keeping leaner channel inventories while maintaining higher levels on our balance sheet. Over the trailing twelve months, operating cash flow and CapEx were $4.2 billion and $500 million respectively. We continue to expect fiscal 2025 CapEx to be within our long-term model of 4% to 6% of revenue. Free cash flow over the trailing twelve months was $3.7 billion, 35% of revenue, and we have returned $3.5 billion in cash to shareholders over the last four quarters. As a reminder, we target 100% free cash flow return over the long term using 40 to 60% for our dividend and the remainder for share count reduction. Now on to our fourth quarter guidance. Revenue is expected to be $3 billion plus or minus $100 million. On a sequential basis at the midpoint, we expect industrial, communications, and consumer to increase with the fastest growth in industrial. Automotive is expected to decline. Operating margin is expected to increase to 43.5%, plus or minus one basis point. Our tax rate is expected to be between 11-13%. And based on these inputs, adjusted EPS is expected to be $2.22 plus or minus 10¢. In closing, our strong results and outlook for continued growth, especially in the industrial market, reinforce our view that 2025 will close as a strong recovery year for ADI. However, we are mindful of the continued uncertainty facing customers with respect to tariffs and are monitoring the impacts closely. We believe we are well-positioned to successfully navigate an evolving global operating environment thanks to the optionality enabled by the diversity of our markets, applications, and products and the resilience of our hybrid manufacturing strategy. With that, let's go to our Q&A session. We ask that you limit yourself to one question in order to allow us for additional participants on the call this morning. If you have follow-up questions, please re-queue, and we will take your question if time allows. Operator, can we have our first question, please? Operator: Thank you. For those participating by telephone dial-in, if you have a question, please press 11 on your phone to enter the queue. If your question has been answered, and you wish to be removed from the queue, please press 11 again. If you are listening on a speakerphone, please pick up the handset when you're asked. And our first question comes from Timothy Arcuri with UBS. You may proceed. Timothy Arcuri: Thanks a lot. So, industrial last quarter was 7%. It was up 11% this quarter, and it sounds like it's going to be very strong again in fiscal Q4. Can you just talk do you think you're now shipping above consumption in these markets? How do you view sort of where we are? Are we now in, you know, inventory build mode in those markets, and how do you sort of assess, you know, how long the, you know, goodness can last? Richard Puccio: So I got since we called the bottom back in Q2, so industrial has been our most profitable business and has grown sequentially every quarter. More recently, as we've talked about, the growth has accelerated, and our outlook for Q4, which is normally a seasonally down quarter for industrial, we expect it to grow in the low to mid-teens. Quarter over quarter. So very very strong outlook there. You know? And what's important is growth is happening across all of our industrial sectors, including instrumentation, automation, aerospace, defense, healthcare, and energy infrastructure, as well as across all the geographies. Again, an indication that we are in this cyclical upturn. You know, at the same time for us, we've talked about this in multiple quarters, you know, our channel inventories continue to be very lean, and we believe end demand is still double digits below consumption. Now we are gonna start seeing some catch up to the end demand in the fourth quarter. As we as as I mentioned in my prepared remarks, you know, we did see the channel inventory weeks tick down a little bit. As the end demand was a bit higher than we had planned. You know? And then so on top of that, you know, as we look forward, we are continuing to see green shoots across aerospace and defense and ATE. And so we feel pretty good about where we are both near and long term. From an industrial perspective. Timothy Arcuri: Great. Thank you. Operator: Our next question comes from Harlan Sur with JPMorgan. You may proceed. Harlan Sur: Hey, good morning. Thanks for taking my question and great job on the quarterly execution. Looks like you guys had anticipated last earnings call gross margins for Q3 to be closer to 70%, but at actually, you know, actuals were actually closer to 69%. I assume it's because of the upside in the lower margin communications business, which was up 17% sequentially. So essentially mix related. Is that a fair assumption? And then on Q4 at the midpoint of your guidance range, are you guys assuming that gross margins are improving sequentially? Richard Puccio: Yes. So I'll take that one. So yes, we did have an implied increase in the margin. You know? However, we did have an unexpected lower utilization during the quarter, which kept us from growing our gross margin on a sequential basis. However, the utilization is back on track, and we expect it to resume its increase. And in Q4 at the midpoint, we do expect to get back a 70% margin. Had we not had the disruption in the utilization in the third quarter, we actually would have grown sequentially. But the mix piece as you mentioned, because we still are only at 45% industrial mix in the third quarter, would have kept us from fully getting to 70%. Harlan Sur: I see. Thank you, Rich. Richard Puccio: Sure. Thank you. Operator: Our next question comes from Tore Svanberg with Stifel. You may proceed. Tore Svanberg: Yes. Congrats on the continuous recovery here. Vince, had a question on the automation revenue. I think in the past, you've talked about this sort of being a 15% grower, and that's certainly, you know, above the corporate average. I'm just curious, given everything that you're seeing now in humanoids and robotics, you know, reference designs with some key GPU players and so on and so forth. Are you starting to see perhaps an acceleration, you know, that 15% growth target going forward? Vincent Roche: Yeah. Thanks for the question, Tore. So, yeah, I you know, the automation business for ADI is multiple hundreds of millions of dollars on an annual basis. And it's our sense that by 2030, we can double the size of that business given the strength of the R&D pipeline, the opportunity pipeline that we have, as well as some of these new modalities that are coming into play, you know, as demographics and macro pressures kind of lean on putting more and more manufacturing capability closer to points of consumption. There's obviously a security issue as well, supply chain security issue. So all those factors, I think, exogenous and endogenous factors point to a strong growth in that business. Also, as I pointed out in the prepared remarks, we're seeing a lot of new sensing modalities come to bear, and every one of those sensors or actuators that our customers are putting in place require very precise sensing control and data processing. So for all those reasons, we feel very optimistic about the state of this business and its potential to grow and double its size over the next five or six years. Tore Svanberg: Thank you, Vince. Vincent Roche: Thank you. Operator: Our next question comes from Vivek Arya with Bank of America. You may proceed. Vivek Arya: Thanks for taking my question. I think in response to a prior question, you mentioned that you're seeing green shoots in different parts of industrial, right? And despite the strength that you saw in Q2 and Q3. So does it mean that as we kind of potentially look out to Q1, is ADI still capable of growing at least seasonal or above seasonal? And if yes, you know, what is kind of normal range of seasonality so we can calibrate our models? Thank you. Richard Puccio: Vivek, I'll start. From a Q1 perspective, you know, as we said before, we don't guide to Q1. But we do expect that we'll be able to grow at seasonal. And, you know, obviously, for us on an overall perspective, you know, first quarter tends to seasonally be down, you know, in the low single digits. Vincent Roche: Yeah. So I think, you know, as we look into the new year, I believe industrial will be a very, very strong part of our momentum in the coming year. And as Rich narrated in part of the Q&A here, you know, from just the supply-demand side of things, we're seeing still customers are in digestion phase of their excess inventories, and particularly in the broad market, which is a piece of a significant piece of the industrial business in the past where we're still seeing the demand there quite light. So there's still a kind of a normalization to take place, which should boost the industrial sales in the coming quarters as well as our position with new products and our position with customers and new applications. So in the automation space, so we've got aerospace and defense, which has been incredibly strong. In fact, in some ways, we're supply limited in that business. So I think that will be the bedrock of the next several quarters of the company's performance. Thank you. Vivek Arya: Thank you. Operator: Our next question comes from Jim Schneider with Goldman Sachs. You may proceed. Jim Schneider: Good morning. Thanks for taking my question. I was wondering if you could provide a little bit of color on what you're seeing in the automotive market. I believe last quarter you referenced some select inactivity. Did you actually in fact see that occur in the quarter? And if so, from what regions? And then going forward, maybe talk a little bit about what's driving the sequential decline you expect in the quarter? And any color you can provide on regions or customer OEM types will be helpful. Thank you. Richard Puccio: Thanks, Jim. So, you know, obviously, we continue to perform very well in automotive, particularly in our connectivity and power management, fueling auto revenue. As we've said, we expect to record record levels of auto revenue for 2025. You know, in addition to our content growth and share gains in the gen ADAS and infotainment systems, you know, we do believe our auto revenue has been aided by some order acceleration, which we talked about in Q2. We do think there was some additional acceleration in Q3. However, we do see that unwinding in Q4, which is why we expect to see Q4 come down. You know, we think that that will be the sort of close out of that early buying. You know? And this is what we actually talked about when we released our last quarter results was we expected that the pull-ins were likely going to come from our Q4 or Q1 period. Based on the way it's settling out, it looks like it's unwinding in the fourth quarter. You know? And if you think about that from a just from a sizing perspective, in the current quarter, you know, we were obviously above our high end of our guide. And I think largely that part of the that we were above the high end of our guide was likely related to the auto pull-ins. And what's different this time actually is the auto pull-ins we saw this time in Q3 were in China, whereas when we talked about them in Q2, that was for North America and Europe. You know? It's for us to know how this will shake out. But we do think that given the behavior we've seen from our auto customers, you know, EV credits expiring and the risk that tariffs sort of could curtail production, we are taking a bit of a more conservative view to automotive in the near term. Vincent Roche: But, you know, stepping back again, we'll have our third record year in auto in the last four years, which is reflecting our content and share gains. You know, and we've talked about this before. You know, we tend to outpace the SAR volumes with content gains where we're getting about a double-digit benefit from share and content. So we feel really well positioned there as we go into the medium and long term. Jim Schneider: Thank you. Operator: Our next question comes from Stacy Rasgon with Bernstein Research. You may proceed. Stacy Rasgon: Hi, guys. Thanks for taking my question. So around the auto pull-ins and, I guess, relative to industrial, so you I mean, you're guiding auto implicitly down 15% sequentially as those pull-ins kind of ease. Industrial, you're guiding up. I don't know. You said low to mid-teens, which would put it up, you know, in the mid 30% year over year. What are you seeing differently on the trends in industrial versus what you saw in auto that gives you confidence that the strength you're seeing in industrial is not also pull forward? Richard Puccio: So what we talked about last time is the indicators, Stacy, for what we thought were pull-ins, where we saw unplanned growth in areas, you know, around and that and we saw the anomalous bookings behavior that happened around the tariff announcements and then the ensuing reversals. Things normalize. We have not seen that kind of behavior in industrial. In fact, the bookings trends have followed the trends we were expecting. It's impossible to say there isn't some minor amount maybe in any of the businesses, we haven't seen anything outside of auto that would give us an indication there's any meaningful pull-in in our business. Vincent Roche: Yeah. I think it's probably yeah. Go ahead. Stacy Rasgon: Industrial is well above seasonal, though. So, I mean, is that just that's just increased demand if channel fill or or or what? Vincent Roche: No. It's in three problems. It's nothing to do with channel. Yeah. Channel is very lean. We're still undershipping real consumption of the market. Parts of industrial have been just in inventory digestion mode for actually a couple of years. So we're starting to get that behind us. But if you look at the strength of our aerospace and defense, you know, I mentioned there a little while ago, we're actually supply limited there. Very, very strong backlog. ATE, which is supporting the build-out of AI chips and infrastructure. Very, very strong demand. And we've begun to see the recovery of the automation business in the, you know, over the last couple of core two, three quarters. When you couple that as well with healthcare, which has been really damp in terms of demand, you know, ever since the kind of the peak of the pandemic there. That should come good as well, and we're seeing signs of stabilization, but that should come good over the next few quarters. So I think you put all that together, the breadth and the depth, customer count, the product count, some of the idiosyncratic trends that we've captured as well as just the overall rising tide in demand across the board bodes well for the industrial business. Stacy Rasgon: Got it. That's helpful. Thank you. Vincent Roche: Thank you. Operator: Our next question comes from Chris Danely with Citi. You may proceed. Chris Danely: Hey. Thanks, guys. Can you just give us a little more color on why the utilization rates came down and then where utilization rates are, where you're expect them to go, and any other gross margin drivers going forward as well? Thanks. Vincent Roche: Well, I think, you know, we had a, as Rich said, a onetime event in our European fab during the last quarter. That was the primary dampening effect on the gross margin. So it became, you know, an absorption issue. I will say as well pricing has been very, very steady. And as our mix improves on the industrial side of things, we get the benefit of that in the gross margin. And I don't expect a repeat of, you know, what was a onetime event in one of our factories in the last quarter to repeat. Chris Danely: What are utilization rates now? Richard Puccio: So I don't I don't I know you always like to ask me this. They're increasing. We're not yet back to the utilization levels we were obviously, in the pandemic era nor do we expect to get all the way there. But we are continuing to increase, as I mentioned, other than this one-time hiccup, which is now behind us, we are back increasing. As given the growth we're seeing and the plan starts in the factories, we're getting higher utilizations. Vincent Roche: So I think as well, we have talked many, many times about the CapEx that we've deployed to strengthen the resiliency of the internal fabs at ADI. So we have built we've more than doubled the footprint of the internal fabs that support largely the industrial business, so we're absorbing that cost, and as the industrial business continues to increase in strength, you know, that absorption strengthens as well. So I think you've gotta bear those things in mind. Chris Danely: Okay. Thanks, guys. Vincent Roche: Thanks, Chris. Richard Puccio: Thank you. Operator: Our next question comes from Joe Moore with Morgan Stanley. You may proceed. Joe Moore: Great. Thank you. A couple of minutes ago, you talked about seeing some supply limitations in aerospace and defense. I wanted to just follow-up on that and talk ask where those supply constraints might be coming from. And you seeing any supply constraints in any other part of your industrial business as things get stronger? Vincent Roche: You know, I think we've just seen a tremendous upsurge in the amount. It just takes time to lay in the capacity, the tooling. In the aerospace and defense area. And you know, it's a highly diversified business with an incredible array of product complexities. So, you know, it's really just a case of, you know, each quarter, we're laying in more capacity. And but the demand keeps increasing. It's a very, very high-quality problem that we have. Demand is surging ahead of our ability to manufacture right now, but we've been laying in the CapEx, the tools, to make sure that we capture the opportunity. And pretty much everything we do there is sole source. I mean, these are proprietary products. And we see this. We've increased our footprint. We've an internal factory that's very, very important to the manufacturing of our aerospace and defense solutions. So we've been tooling that facility as well. So I think generally speaking, we're in better and better position, but really the problem it's a high-quality problem of surging demand. Richard Puccio: Yeah. So I'll put an even finer point on it for you, Joe. We're actually deploying tools into the aerospace and defense manufacturing in the third and fourth some in the third and more in the fourth quarter to alleviate some of the stress events just described. And from an overall business perspective, we certainly have supply right now to cover all of the near-term demand that we have on the books. I think the rest of the industrial business is in good shape overall regarding supply. Joe Moore: Yes. Thank you. Richard Puccio: Thanks, Joe. Joe Moore: Thank you. Operator: Our next question comes from Joshua Buchalter with TD Cowen. You may proceed. Joshua Buchalter: Hey, guys. Thank you for taking my question, and congrats on the good results. I apologize for being nitpicky in an objectively good quarter. I did want to ask about gross margins, though. I think a couple of quarters ago, you had mentioned $2.7 billion being sort of the level at which you hit 70% gross margins. It looks like that's seemingly around $3 billion I guess. Can you maybe walk through what's changed and how we should think about fall through from here going forward? Thank you. Richard Puccio: Thanks, Josh. And I we have talked about this a lot, and I think that the part two of what we've said all along is getting to two seven and getting back to a 70% margin would require us to get back to a more normal industrial mix. So near term, as you saw, we were only 45% industrial when we were building all those models. We were a much larger percentage. So we have said we would need to have that mix. And obviously, the mix is shifting as the industrial grows. And if you look to our, you know, where we expect our Q4 to go with the industrial growth we've talked about, you know, we will probably exit Q4 with more like a 49% industrial mix, which is part of the reason we think we'll get back into that 70% range in our fourth quarter. So it is as we talked at the beginning a little bit, it is also mix constrained given the industrial piece is our most profitable business. Joshua Buchalter: Understood. Thank you for the color there. Richard Puccio: Thanks, Josh. Operator: Thank you. Our next question comes from Ross Seymore with Deutsche Bank. You may proceed. Ross Seymore: Hi, guys. Thanks for letting me ask the question. Just wanted to pivot over to the OpEx side of things. Any sort of color for your fiscal fourth quarter? And probably more importantly, as we look into fiscal 2026, I know you guys have a big variable component to your OpEx. This year, it looks like it's up I don't know, high teens or something like that in fiscal 2025. Any sort of color on how the OpEx would relate to revenues in fiscal 2026? Richard Puccio: So, yeah. So, from a fiscal 2025 perspective, assuming the midpoint for Q4, we expect we'll deliver about 100 basis points of operating leverage versus 2024. Which I feel very good about because when we started the year, knowing we were gonna have a pretty significant headwind on the variable comp, we thought we might have a pretty flat operating leverage here, but we are gonna deliver some additional leverage. Now a lot of that is coming from the gross margin expansion as we've talked about. Because some because of variable, our OpEx is growing at a higher rate than we would normally expect, and that is, you know, as we've talked about. Right? In the prior year, given our bonus pays on revenue growth and profitability and the fact that 2024 had no revenue growth and margins were muted, bonus was very low, which was part of the reason we were able to hold our 40% operating margin in the trough year. Now with a return to significant growth, our variable comp is normalizing to a much higher level from a, you know, a very low payout in the prior year. So if you look forward to 2026, I would expect that acceleration piece that we saw from the variable comp to decline. You know, we obviously would expect to have variable comp in a growth year, but given the new baseline of 2026, we would expect in the revenue growth that we would get some continued leverage as the operating as the variable won't increase as radically as it did 2024 to 2025. Ross Seymore: And then, excuse me. Obviously, all of these points of view are contingent on revenue growing, you know, which we're assuming in from a top line perspective. Ross Seymore: Thank you. Richard Puccio: Thank you. Operator: And our final question comes from Chris Caso with Wolfe Research. You may proceed. Chris Caso: Yes, thanks. Good morning. Just a question on business in China right now. And you mentioned in some of your earlier comments that China auto was strong last quarter. Could you give us some sense of what the totality of the China business looked like? And, again, in that case, even outside of auto, is there any fear of, you know, any pull forwards within that business or any anomalies that you may have seen within the China business in the last quarter? Richard Puccio: Sure. So, obviously, we've talked about China is a very very competitive place for us. But, you know, I continue to be very confident in our ability to win and to grow in China, which we've done for decades. Now if you think about how we're positioned in the market, right, we tend to get a premium for our performance, you know, and that's the innovation premium you've all heard me talk about. Where performance matters, they're gonna continue to pick us, right, which is why we tend to get higher ASPs. It also makes it very challenging for those that make products that are good enough to compete with us in that market. So we feel from a competitive perspective, we feel very well. Obviously, the other thing for us that's significant is, you know, scale is really important. Especially in analog with the broad base of components. You know, we've got six decades of experience building that with 70,000 SKUs. It's really really especially true in industrial given the diverse nature of that product. As we've talked about now for a number of quarters, China has been leading our recovery. Right? We've talked about they've achieved achieving record auto results. This year. We had record design wins in 2024. We've continued growth in design wins in 2025. And our outlook for China is pretty positive over the next three to five years. Based on the things we're seeing here. Now it is interesting. We've spent a lot of time talking about how strong China auto is. We've started to see year over year growth in China across all of the industrial end markets. But outside of auto, all of those other end markets are well off their prior peaks. So, you know, north of 35% at least, and some of them are still 50% off their peaks. So we think there's still runway there for us from a medium and long-term perspective. As that market continues to rebound. Chris Caso: Thanks. Richard Puccio: Thank you. Operator: I would now like to turn the call back over to Mr. Richard Puccio for any closing remarks. Richard Puccio: Alright. Thanks, everyone, for joining us this morning. And with that, a copy of this transcript will be available on our website and all available reconciliations and additional information can also be found at the Quarterly Results section of our Investor Relations site at investor.analog.com. Thanks again for joining us and your continued interest in Analog Devices. Operator: Thank you. This concludes today's Analog Devices conference call. You may now disconnect.

Operator: Good morning, and welcome to the Analog Devices Second Quarter Fiscal Year 2025 Earnings Conference Call, which is being audio webcast via telephone and over the web. I'd like to introduce Rich Puccio, Chief Financial Officer of Analog Devices. Rich Puccio: Thank you, Josh, and good morning, everyone. Before we start the formal part of our earnings call, I'd like to say a few words about Mike Lucarelli. As many of you may know, this will be Mike's last earnings call as he will be leaving ADI at the end of May to pursue a new career opportunity. I want to thank Mike for his many contributions over his 10 years in Analog Devices. Mike has been instrumental in my transition into the Company, and I will be forever grateful for his advice and guidance as I learn the ropes here. I'll miss Mike's insights, optimism and relentless work on behalf of our stakeholders. Mike, I wish you the best in your new adventure. I'll now turn the call over to Mike Lucarelli, Vice President of Investor Relations. Mike Lucarelli: Thank you, Rich, and good morning, everyone. I also I've thoroughly enjoyed my time working in Investor Relations, and that's because of all you on this call for investors to the sell-side to my colleagues at ADI. Vince, it's been a great 10 years, Rich, was short and sweet, but it was good. And then ADI crew, the Thunder Alley crew, thank you for everything for the past 10 years has been awesome. Jeff, who I hired over six years ago from the sell-side has been a great asset to the IR team and ADI overall. He will be replacing me as Head of Investor Relations. Now Jeff, when I started, the stock was $50. It's now $225, 4x, that means you need to drive this stock to $1,000, and I trust you can do that. So let me pass it to you, Jeff, to host today's call. Jeff Ambrosi: Thank you, Mike. It's been a privilege working for you. You've taught me many things about semis, ADI and life in general. So, while I'm sad to see you go, I am excited for the opportunity, and I'm looking forward to it. Now for anyone who missed our earnings press release, you can find it and relating financial schedules at investor.analog.com. The information we're about to discuss includes forward-looking statements, which are subject to certain risks and uncertainties, as further described in our earnings release and our periodic reports and other materials filed with the SEC. Actual results could differ materially from the forward-looking information as these statements reflect our expectations only as of the date of this call. We undertake no obligation to update these statements, except as required by law. References to gross margin, operating margin, operating expenses and nonoperating expenses, tax rate, EPS and free cash flow, and our comments today will be on a non-GAAP basis, which excludes special items. When comparing our results to our historical performance, special items are also excluded from prior periods. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures and additional information about our non-GAAP measures are included in today's earnings release. References to EPS are on a fully diluted basis. Okay. And with that, I'll turn the call over to ADI's CEO and Chair, Vincent Roche. Vince? Vincent Roche: Thank you very much, Jeff, and a very good morning to you all. Well, our second quarter results exceeded our expectations both on the top and bottom lines. Revenue growth was broad-based with double-digit year-over-year growth across all end markets. Against the volatile operating backdrop, our favorable performance and positive outlook underscores the growing demand for our exceptional product portfolio, and the resilience and agility of our business model. While we believe the evolving tariff situation is impacting customers' decision-making, the cyclical and ADI-specific tailwinds I highlighted last quarter continue, and we're ever more confident that our revenues bottomed in 2024 and that we're returning to growth in fiscal '25. The secret to our success over these many decades has been sensing business transitions early and adapting quickly to continue focusing our capital where we can best increase our value to customers and improve our ability to capture that value. We invested substantial CapEx over recent years to enhance and scale our hybrid manufacturing model, which helps our customers navigate increasingly dynamic geopolitical and macroeconomic environments. We expanded capacity at our existing fabs in the U.S. and Europe and added commensurate capacity in our back-end facilities. Further, we deepened partnerships with trusted foundries around the world including securing additional 300-millimeter fine pitch technology capacity at TSMC's Japan subsidiary. We've crossed qualified a significant portion of our broad product portfolio to be able to quickly swing production across geographies. In short, our customers now enjoy greater supply optionality and resilience than ever before. On the OpEx side, we're investing at record levels to further strengthen and extend our world-class technology stack and continue enhancing our customers' experience and engagement with ADI. These investments allow us to take maximum advantage of the incredible opportunities for profitable growth that we see across our end markets. ADI plays a game that prices leaps and innovation that transcends near-term macro concerns. We focus on five key megatrends that are persistently driving the future of business, the global economy and society, namely autonomy, proactive health care, the energy transition and sustainability, immersive experience and AI-driven computing and connectivity as the essential interface between the physical and digital domains, ADI is a critical enabler of these trends. We continue to define and pioneer the state of the art in high-performance analog, mixed signal and power management, from sensor to cloud, microwave to bits and nanowatts to kilowatts. Today, customers are turning to us for more complete solutions. The combination of our extensive franchise with the exquisite creativity and broad-based expertise of our technologists, gives us the ability to deliver elegant solutions to customer challenges that others struggle even to address. For example, as health care becomes more preventative and preemptive, our ability to accurately and reliably sense, measure, interpret and connect clinical-grade vital signs in ultra-low power settings is driving robust content and revenue growth at key customers in the smart wellness wearable space. Within clinical care settings, our cutting-edge imaging and patient monitoring solutions are enabling earlier identification and diagnosis of disease, which can enable more effective treatment and better patient outcomes. Turning to the autonomy trend, advances in automation within the industrial market, for example, are generating tremendous opportunity for ADI. The progression of robotics from fixed arm to autonomous and mobile to humanoid form factors, requires ever greater quantities and integrations of sensing, edge computing, connectivity and energy management, driving our content from hundreds of dollars in fixed robots today to potentially thousands in autonomous and humanoid robots. In automotive, higher levels of autonomy are increasing demand for our sensing connectivity and functionally safe power solutions across all vehicle types, combustion engines, hybrids and full EVs. Each new generation of automated system, be it industrial robots or car dramatically expands our content and revenue opportunity. And one final example from the AI-driven computing and connectivity trend, where the world's rapid adoption of AI continues to accelerate the growth of our ATE and data center businesses. Our leadership and success in ATE underscores the quality of our portfolio as the winners in this market are determined, first and foremost, by performance. Our content per tester stretches into the hundreds of thousands of dollars. And looking ahead, we believe our leverage of additional mixed signal and digital capabilities to further reduce test time and power requirements will result in even more content per tester. And with AI investments showing no signs of slowing, testing demand for GPUs, XPUs and high-bandwidth memory continues to increase, giving us confidence in a long runway for growth. Beyond test, our data center customers are turning to us to solve the vast and complex power and connectivity challenges that come with high performance, always-on AI computing. As a result, demand continues to grow for our innovative systems protection, optical control and power delivery solutions. These are just a few examples of how our solutions leverage persistent trends that transcend business cycles, drive an average selling price 4x the industry average, and deliver differentiated results for both our customers and our shareholders. So, in closing, we've successfully anticipated the transitions of the ICT industry and invested ahead of the curve for decades. Today, we're well positioned to deliver the AI-driven Intelligent Edge solutions that will shape our future success. You may have seen that we just celebrated our 60th anniversary, milestone that fewer than 1% of public companies reach. But as thrilling as that accomplishment is, I'm even more excited about our future and the immense opportunity before us. Now before I hand it over to Rich, I'd like to thank Mike Lucarelli, young Mike, for his distinguished and stellar contributions over the past several years to ADI's success. And I wish him well in his next adventure. With that, over to you, Rich. Rich Puccio: Thank you, Vince. Second quarter revenue of $2.64 billion came in above the high end of our outlook, up 9% sequentially and 22% year-over-year. Industrial represented 44% of our second quarter revenue, finishing up 8% sequentially and 17% year-over-year. Our industrial recovery broadened with all subsectors and regions increasing sequentially. On a year-over-year basis, we continue to see strong growth in aerospace and defense and ATE. Automotive represented 32% of quarterly revenue, finishing up 16% sequentially and 24% year-over-year. This record result was fueled by continued strong demand of our leading connectivity and functionally safe power solutions, particularly in China. Additionally, we saw sequential growth in Europe and North America. Communications represented 12% of quarterly revenue, finishing up 5% sequentially and 32% year-over-year. Wireline and data center, which makes up roughly 2/3 of our total communications business, drove our strong growth as AI build-outs continue to increase demand for our power and optical control products. And while wireless revenue declined on a year-over-year basis, it did grow sequentially. And lastly, consumer represented 12% of quarterly revenue, finishing flat sequentially and up 30% year-over-year, our third consecutive quarter of robust growth. This reflects our greater share and stronger content position across a diversified list of applications. Now on to the P&L. Second quarter gross margin was 69.4%, up 60 basis points sequentially, driven by higher utilization. OpEx in the quarter was $744 million, up $57 million sequentially, driven entirely by variable compensation, resulting in an operating margin of 41.2%. Nonoperating expenses finished at $54 million and the tax rate for the quarter was 11%. All told, EPS was $1.85, up 32% year-over-year and above the high end of our guided range. Now, I'd like to highlight a few items from our balance sheet and our cash flow statements. Cash and short-term investments finished the quarter at $2.4 billion, and our net leverage ratio decreased to one. Inventory increased $50 million sequentially as we continue to invest in die bank to support our recovery. Days of inventory decreased to 169 and channel weeks ticked lower. In the near term, we are maintaining our strategy of balancing leaner channel inventories with higher levels of inventory on our balance sheet. Over the trailing 12 months, operating cash flow and CapEx were $3.9 billion and $0.6 billion, respectively. We continue to expect fiscal 2025 CapEx to decrease materially from 2024 and be within our long-term model of 4% to 6% of revenue Free cash flow over the trailing 12 months was $3.3 billion or 34% of revenue. And during that same period, we have returned nearly $2.5 billion to shareholders through dividends and share repurchases. As a reminder, we target 100% free cash flow return over the long-term using 40% to 60% for our dividend and the remainder for share count reduction. Before moving on to guidance for our fiscal third quarter, let me provide additional color on recent demand trends given the current backdrop. Unsurprisingly, buying behavior was a bit choppier than normal as we saw some increased activity around the tariff announcements. This was short-lived and orders have returned to more normalized levels. Overall, Q2 bookings grew sequentially across all end markets and all geographies, and our backlog entering Q3 is higher than a quarter ago. These signals support our view that our revenue bottomed in 2024, customer inventories are lean, and we are in a cyclical upturn. Now moving on to guidance. Third quarter revenue is expected to be $2.75 billion, plus or minus $100 million. On a sequential basis, at the midpoint, we expect industrial and consumer to lead our growth, communications to be up and automotive to decline after a very strong quarter. Operating margin is expected to be 41.5%, plus or minus 100 basis points. This includes the impact of our annual salary increases. Our tax rate is expected to be 11% to 13%. And based on these inputs, adjusted EPS is expected to be $1.92, plus or minus $0.10. Now, I'll pass it back to Jeff to begin our Q&A session. Jeff Ambrosi: Thank you, Rich. Now, let's get to our Q&A session. We ask that you limit yourself to one question in order to allow for additional participants on the call this morning. If you have a follow-up question, please requeue, so we will take your questions if time allows. With that, can we have our first question, please? Operator: [Operator Instructions] Our first question comes from Joseph Moore with Morgan Stanley. You may proceed. Joseph Moore: Great. And congratulations to young Mike. Can you discuss automotive, the 16% sequential growth really stands out relative to what peers are seeing? Just what's driving that and kind of any sense for if there's any tariff pull-forward in that or just any mitigation that's happening there? Just how are you growing so much in autos? Rich Puccio: Thanks, Joe. I'll take that one. So, Q2 was notably stronger than expected. Bookings were strong. Turns were a lot higher than normal. And given some volatility sawing the quarter, we do think our auto results were aided by pull-in activity. While it's difficult to delineate what was pull-in versus normal, our estimate for pull-in upside is in the high single-digit range. However, buying behavior, as I mentioned, has normal [Technical Difficulties] to recur, and this is why we expect to decline in Q3, actually. Additionally, if you think about it, if you adjust for what we think the pull-in impact was, we're really guiding a seasonally flat Q3 for auto. On the pull-ins, right around the 25% auto tariff news, we saw an acceleration in auto sell-through and orders, most notably in the Americas and in Europe, which were collectively up about 20% sequentially, much better than we had planned. And at the industry level, we saw a stronger SAAR numbers than expected in the quarter, potentially also explained by consumers getting ahead of the higher prices. So, our hunch is that the upside in auto right around tariffs was not a coincidence. As for China, the other major market for auto, noted last quarter, we expect a continued growth, and we had another record, and that is what occurred in Q2. And there could have been some pull-in activity but not nearly as noticeable as what we're seeing in North America and Europe. Operator: Our next question comes from Vivek Arya with Bank of America Securities. You may proceed. Vivek Arya: Best wishes to Mike as well. So first is you mentioned that you are at a cyclical upturn. And I'm curious, how much do you think you are undershipping demand right now? Is it 10%? Is it 20%? And how many quarters until this kind of just undershipment impact normalizes, right? So, when do you think, your sales will start to correspond more to end demand rather than just inventory replenishment? And I know you just spoke about autos, but I was hoping when you could give us some more color on the industrial side as well and the level of undershipment and then the normalization timing for that. Vincent Roche: Yes. Thanks, Vivek. I'll take the first part of the question. Yes. So, I think, look, we've seen -- we're in a period now where we've got cyclical tailwinds. We've kept the channel very, very lean. We've been undershipping industrial significantly actually. I think more so than any other market over the past two years. My sense is we're getting back to a more kind of a normalized convergence between demand and supply in that area. We're still keeping overall inventory, particularly in the channel. We're keeping it very, very lean, putting more and more, as Rich said, earlier, putting more inventory on our balance sheet to be ready for the upside. On the industrial side, so I think what we're saying is the franchise, the core franchise of the business, automation, broad base of customers recovering nicely. And we've also seen some excellent examples of green shoots in the aerospace and defense and the AI test area, which I alluded to in my script. And we've got a lot of new wins in health care and automation. So, there's a good blend, I think, of kind of the legacy franchise and the new technologies pushing the Company. So, we've got cyclical tailwinds, and we've got idiosyncratic tailwinds as well, given the new products in the new applications. Rich Puccio: Yes. And Vivek, what I'd add is I would say from a consumption perspective, we're probably still shipping 10-plus percent below the low-end consumption. But if you think about the outlook, if you take our guide embedded in that guide is about 10% growth in Industrial. And at that midpoint, we will be shipping to end demand. And as we talked about, we'll continue to balance the channel inventory, but we will, at the midpoint, be expecting to ship into end demand in 3Q. Operator: Our next question comes from Harlan Sur with JPMorgan. You may proceed. Harlan Sur: And Mike, thanks for all the great support over the years and best of luck in your future endeavors. Industrial Automation, I think you guys touched on it a little bit, which is one of your larger subsegments within industrial. I believe it's about 25% of industrial segment. This was one of the last large subsegments to show recovery given the tie-in to global manufacturing activity, automation inflected. I think in October of last year, it grew in January. Did you guys see further sequential growth in industrial automation in April? And then coincidentally, trade and tariff historically has driven weakness in automation as manufacturers pull back in the phase of uncertainty. Are you seeing any changes in industrial automation order trends recently, especially out of China? Rich Puccio: So, we have continued to see growth. And in fact, when we look at where we ended the quarter from an automation -- excuse me, an automation perspective, we actually have got a book-to-bill in excess of one. We continue to expect that growth to continue into Q3. In fact, if you look at our industrial business across all of the subsectors of industrial, we have positive book-to-bill in all of those areas above one. So, we feel like that has improved. Obviously, there's uncertainty across the board around the tariffs. So, it's impossible to speculate what that will do, but we do see -- we have seen growth in bookings and in the revenue. Vincent Roche: I think it's true as well right across the whole spectrum of applications, automation. We've seen very, very strong book-to-bill geographically as well. So, I think we're in a solid patch right now, tariffs are definitely weighing heavily. The uncertainty is, I think, causing certain spectrum. Many of our customers are holding back on build-outs. But I don't think there's any question about the importance of automation. From many, many dimensions, we've got the kind of the normal build-outs of automation, more and more precision, more connected flexible factories. But also, my sense is we'll see a CapEx cycle as localization takes root as well over the coming several years. Operator: Our next question comes from Tore Svanberg with Stifel. You may proceed. Tore Svanberg: Yes. Congrats on the results. And Mike, thank you so much. Wishing you best of luck. Vince, you mentioned this a little bit in your script, but robotics, I know this is a market that you have a lot of exposure to. And I think there was a slowdown in that market, especially around the pandemic. But now with AI, it seems that we're sort of at an inflection point. So, I was just hoping you could talk a little bit more about that opportunity and some of the design activity that you're seeing on the robotics side. Vincent Roche: Yes. Thanks, Tore, for the question. Yes, I think one of the pervasive trends we're seeing is demographic shift. I think automation of productivity is going to be endemic across the globe. And that predates the concern about what is the need to localize and so on and so forth. So, I think the trend is very, very solid. What we're going to see is new epoch, I think, in robotics that we'll move into more tactile, more precise robotic systems that will use a lot of intelligence at the edge. And we are -- you may have seen some of the press and some of the areas where we're collaborating with robotic suppliers, complementary semiconductor partners as well to enable this new era of highly tactile precision robotics to take place. Everybody is focused on the humanoid, but I think there are many steps to take place between the kind of the big heavy arm robotics the more mobile tactile robotic systems. So, we know our content typically in a large arm system would be hundreds of dollars. But as we see more available opportunity to bring intelligence to the edge, we see more modalities of sensing take roots in these more sophisticated robotic systems. I think the content that we could see there will be an order of magnitude more, maybe more over the coming five, 10 years. So, my sense is this is a long-term persistent trend, and I think we're very, very well positioned at that edge. Of course, AI will enable more and more intelligence at the edge, and that's something that we're preparing our solutions to be able to incorporate. Operator: Our next question comes from Chris Danely with Citi. You may proceed. Chris Danely: First of all, Mike, thanks a lot for all your help and honesty over the years. First, Dave, Paul, now Mike Lucarelli leaving. This is super depressing. Anyway, but congratulations in all honesty. So just a question on leverage guys. So, if we look at the April quarter results and the July quarter guide, your OpEx is basically growing about as much as sales. And then, the guide for the July quarter, even though you don't guide gross margin implies minimal gross margin growth. So, can you just talk about why that's happening? And should we expect some sort of acceleration in leverage going forward? Or should OpEx continue to grow about the same amount of sales and same way with gross margin? Mike Lucarelli: Chris, I'll take that one. So, from a -- I'll do the near term first, and then I'll talk a little bit about '25 and what I think you might be able to expect in '26. So, Q2 operating margin was up sequentially despite the big acceleration in variable comp. In fact, our base OpEx was actually flat sequentially. So, what you saw -- that's what you saw in Q2. In Q3, we do expect to see some continued operating leverage, which will get offset by the impact of our annual salary increases as well as our continued growth in the variable, although we will expect the increase in variable certainly sequentially to be lesser degree than we've seen in Q2. If you think about it, just as a reminder for everybody, the mechanics of our variable comp plan, which is tied to the year-over-year growth in operating margin. Given the absence of revenue growth in '24, it was a pretty low year for us. And considering our return to growth here in '25, variable comp is going to grow and will continue to grow meaningfully. So, while we are optimistic, we will continue to achieve operating margin percent growth, the increase in the variable in '25 is muting that. However, when we look to '26, we'll be going off of a smaller base. And so, we do expect we'll get more leverage if we continue the cyclical upturn. Rich Puccio: And then on the gross margin side, at the 2.75 guide, we expect to be around 70%, which we've talked about. That is -- that baked into that assumption is that we will see the growth in industrial we're anticipating, which as you guys know, is our most profitable. And that has been one of our challenges. We've talked about in getting additional leverage. If you look at just the most recent, the outperform in auto puts pressure on gross margin. But as we see the industrial leading the charts coming out with the 10% expected growth in Industrial in Q3, we do expect we will get back to around that 70% margin. Vincent Roche: Yes. I think it's worth noting as well, Chris, that where we are adding OpEx to the Company, aside from the kind of the inflationary things that we have to deal with, it's in the engineering side. We see tremendous opportunity across more and more spaces for analog technology, power technology, but also digital and software. So, we're judiciously adding talent where we need it. And that's a contributor to the OpEx, of course. But obviously, long term, we expect to get the returns and get the growth from these investments. Operator: Our next question comes from Stacy Rasgon with Bernstein Research. You may proceed. Stacy Rasgon: I have two quick questions just on the demand environment. Just first, given the auto dynamics, you talked about SAAR, what are your expectations for SAAR and auto builds like into the second half of the year amid all the tariff uncertainty because I think autos are getting hit more by that? And then secondly, just, I guess, philosophically, you are seeing pull forward in auto. You don't seem to be seeing it in industrial. How would you know if the strength you're seeing industrial is actually true cyclical recovery versus pull forward in the wake of tariffs or uncertainty? Rich Puccio: Thanks, Stacy. I'll do the last one. One of the things we looked at as we were trying to assess what we thought might be pull-ins, as we track our ordering patterns and what our expectations around the ordering patterns were. So, what we saw was at the start of Q2, bookings sort of were progressing higher as we expected them to. Then toward the end of March around the time we heard about the auto tariffs, we saw an acceleration in automotive, and that lasted for a couple of weeks, as I mentioned, it since has normalized. But when we look across the other end markets, we didn't notice anything unusual from a booking trends. They were as expected, and we ended the quarter with like I said, we ended the quarter with book-to-bill above parity. And from a geographic perspective, actually, bookings were up in all regions. So, like I said, we didn't see anything anomalous in the booking patterns outside of what we saw in automotive. Vincent Roche: Yes. I'd say, generally speaking, from the conversations we have with our industrial customers, it's kind of steady as she goes to some extent. There's no particular or anxiety around supply. So, I think it's a pretty normal pattern. And as I said earlier, we're seeing a convergence between shipping and sell-through. Rich Puccio: Yes. And Stacy, Sorry, I skipped your first part of your question on SAAR. Our expectation is that we'll see SAAR down in the back half. And as we've talked about before, we still get benefit from the continued increase in content to offset some of that SAAR pressure, but we are expecting the second half SAAR to be lower. Operator: Our next question comes from Chris Caso with Wolfe Research. You may proceed. Chris Caso: Mike, all the best. Just a question regarding how all of this might affect the second half. And obviously, too early to provide guidance here. But with respect to auto, with some of what you've seen now, as we go into the July quarter, do you think this has normalized such that whatever happens going into the second half is really a reflection of true demand? And I guess the same question for the industrial side as well. How should we be thinking about the puts and takes as we go into the second half? Rich Puccio: Sure. I'll talk a little bit about Q3. So, as I said, we do think we benefited from some pull-ins in Q2. But given what we've seen in the order rates since and continuing into Q3, we're not really expecting any incremental impact from pull-ins in Q3. So, our outlook reflects the acceleration in our recovery, most notably, again, in the industrial market, where we're expecting a very strong quarter. We've got strong bookings momentum across all applications and geographies. As we think about the back half of the year, if you remember last quarter, we talked about hitting 7% to 10% for the full year growth. With what we saw in Q2 and what we've seen in bookings trends in our Q3 outlook, I'm actually more confident than it was a quarter ago that we'll end at the higher end of that range. But we will continue to be cautious and mindful given all the tariff uncertainty. Operator: Our next question next question comes from Joshua Buchalter with TD Cowen. You may proceed. Joshua Buchalter: Mike, congrats on the new gig, and Jeff, congrats to you as well and good luck with the $1,000 stock price. So sorry to pull on and keep pulling on this thread, but I did want to ask about industrial again. I mean you were very clear in your commentary about your on books and channel inventory. But do you get the sense that there's any element of your end customer restocking that's going on? Or do you think this is really just an industrial recovery? Because again, it just the sequentials are better than most of your peers reported, even though they did go a month ago. Vincent Roche: Go ahead, Rich. Rich Puccio: So, I actually -- I don't think we've seen in -- I wouldn't call it restocking. I do think that because they are coming off of inventory lows across most of our customer base, and we know that because when we look at net new orders, we're seeing net new orders come in from the industrial customers. So, I do think that they've had lean inventory and our -- and we've seen their purchasing accelerate. But as we've talked about, we've been undershipping industrial pretty significantly for the last two years. And if we head into Q3, we do not expect undership industrial in Q3. Vincent Roche: We use POS signals as well to gauge -- to get us close to true demand as we possibly can. So, as we said earlier, industrial is the area where we've been undershipping most. And I think what we're getting back to now is a more normalized pattern of shipping and sell-through. Operator: Our next question comes from Blayne Curtis with Jefferies. You may proceed. Blayne Curtis: I'll offer the congrats to young Mike as well. I actually kind of wanted to ask about the plans outsourced versus in-source. So obviously, pre-pandemic, you're leaning more towards external. And then when you ran out of supply, it was let's do more internal. I heard you talking about qualifying external fabs. I'm just kind of how are you thinking about this now? Obviously, tariffs are moving target, but it does seem like more diversity in foundry, geographic location is preferable? How are you thinking about it now? Vincent Roche: Yes. Look, I think first and foremost, we're in a good place in terms of the overall capacity footprint that we have. It's more than 2x what it was before the pandemic. So, we've been investing primarily in CapEx building out front end and back end really to support our growth and give us more resiliency, more flexibility. And I think what we've got now is particularly on the internal piece, I want to make this point as well. When it came to nodes at 180 nanometers and above, which would be the majority, most of ADI's revenue would ship on semiconductor process nodes that are 180 nanometers and above. Essentially, there was no external investment in those nodes for many, many years. So, we decided that was an area that we're still developing a lot of new products on. It's a very, very important part of the -- of many of our businesses, particularly industrial and automotive. So, we decided to place the investments internally to make sure that we have sufficient growth upside and ability to capture the value that we're creating. So, my sense is now we're -- as I said, we've got more than 2x the internal capacity. And we've got this flexible swing between external and internal. From nodes from 5 nanometers, by the way, we're designing new products in 5 nanometers. So, this business is characterized by massive diversity of semiconductor recipes. But the ones that we can do internally to support the broad base of our business, where now we've secured our position there and that we continue to partner with our key collaborators on the finer geometry nodes at kind of 90 nanometers and below. Jeff Ambrosi: All right. That was our final question. Thanks, everyone, for joining us this morning. And with that, a copy of the transcript will be available on our website and all available reconciliations and additional information can also be found at the Quarterly Results section of our Investor Relations site at investor.analog.com. Thanks again for joining us and your continued interest in Analog Devices. Operator: This concludes today's Analog Devices conference call. You may now disconnect.

Operator: Good morning and welcome to the Analog Devices first quarter fiscal year 2025 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 Division Controller of Data Center, Energy, Power. Sir, the floor is yours. Michael Lucarelli: Thank you, Daniel, and good morning, everybody. Thanks for joining our first quarter fiscal 2025 conference call. With me on the call today are ADI's CEO, Vincent Roche, and ADI's CFO, Richard Puccio. When you missed the release, you can find it and the link financial schedules at investor.analog.com. Onto disclosures. Information we're about to discuss includes forward-looking statements, which are subject to certain risks and uncertainties as further described in earnings release and other periodic reports and other materials filed with the SEC. Actual results could differ materially from this forward-looking information as these statements reflect our expectations only at the date of this call. We undertake no obligation to update these statements except as required by law. Governance to gross margin, operating non-operating expenses, operating margin, tax rate, EPS, and free cash flow in our comments today will be on a non-GAAP basis. These exclude special items. When comparing our results to historical performance, special items are also excluded from prior periods. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures and additional information about our non-GAAP measures are included in today's earnings release. All references to earnings per share are on a fully diluted basis. And with that, I'll turn it over to ADI's CEO, Vincent Roche. Vincent Roche: Thanks very much, Mike, and a very good morning to you all. First quarter revenue, profitability, and earnings per share all finished above the midpoint of our outlook. And while we continue to operate in a challenging macro and geopolitical environment, our first quarter results and outlook for double-digit year-over-year growth in our second quarter build my confidence that 2025 will be a year of growth. Our track record of resilience and profitability through cycles combined with our strong balance sheet supports our long-standing robust capital return program. I'm delighted to share that we've increased our dividend for the twenty-first consecutive year and that over just the past five years, we have returned more than $16 billion or roughly 15% of our current market cap to shareholders through dividends and share repurchases. Turning now to our operating environment, the magnitude and duration of this most recent semiconductor cycle has surprised many of us. But we believe ADI has entered and is well-positioned for sustained recovery. Throughout the cycle, we invested diligently to enhance and leverage our hybrid manufacturing model to support the dynamic needs of our customers both big and small. We work closely with our customers to be responsive to their evolving business needs back. Factory starts to true end demand. As a result, inventory levels have largely normalized and our partnership approach with our customers throughout the volatility of the past several years has enabled us to balance supply and real demand. While the macro backdrop will continue to influence the pace of our recovery, the signals we monitor from lean channel inventories to gradual bookings improvements over the past eighteen months support our view that we've passed the cyclical trough and the tide has turned in our favor. Throughout the cycle, we've been busily deepening our customer engagements and accelerating our pipeline growth and conversion. Many of the design wins I've shared on recent calls are now contributing to growth. And let me give you some examples. For example, in industrial automation, the shift towards decentralized intelligence enabling modular manufacturing is driving significant growth in software-defined connectivity solutions. Our software-configurable IO products at double channel density and reduced power consumption by 40% have been installed across all major automation suppliers. Revenue from these wins has begun ramping as the automation market begins to recover and will provide a durable revenue stream over the next decade. Within the growing surgical robotics segment, increasing levels of content from across our portfolio and in particular, our high precision solutions are being deployed in next-generation surgical systems. Additionally, in healthcare, the growing interest in a data-driven approach to health and wellness is creating a convergence of the clinical and consumer markets and driving demand for higher performance vital signs monitoring in consumer wearables. Our suite of high-performance sensors, signal chains, and efficient power solutions and wins at leaders in these markets position us for double-digit growth this year. Within the automatic testing equipment market, the growth of AI has significantly increased our signal chain and power content, in some cases, up to 300% across memory test systems. Customers are leveraging our solutions to increase channel density and throughput while reducing power demands by up to 30%. In light of increased hyperscaler CapEx, we expect our 2025 memory and high-performance compute test revenue to achieve strong growth. In our broad aerospace and defense portfolio, our modules which support ASPs often into the hundreds of thousands of dollars, are expected to lead double-digit growth in this industrial subsector in 2025. In addition, we're anticipating growth this year from newer design wins in RF and power, in the military and commercial satellite sectors. In automotive, the convergence of trends ranging from autonomy to electrification and immersive in-cabin experiences continue to drive robust demand for many of our solutions. For example, our GMSL portfolio is outpacing the growth of advanced driver assistance systems and is positioned to reach yet another record-breaking year in 2025. Since acquiring this video connectivity technology in 2021, our revenue has nearly tripled. We're also anticipating growth in our connectivity and functionally safe power franchises, which share similar growth trajectories. Lastly, in electric vehicles, BMS is poised to return to growth in 2025 after a challenging prior year. Part of this growth is coming from our higher content wireless solution with key OEMs ramping in America and Europe. In communications, our growth is predominantly being driven by robust CapEx investments to support AI infrastructure build-outs. Our high precision electro-optical controller is now shipping in a 1.6 terabit optical module for AI systems based on industry-leading GPUs. On the power side of the data center, we're delivering high voltage power path protection systems which are on a strong growth trajectory, and we'll begin shipping our vertical power solutions later in this year. Finally, in consumer, design wins secured in recent years have multiple customers across numerous including premium handsets, hearables, wearables, and gaming systems, begun to drive robust diversified growth in the second half of fiscal 2024. With even more content in upcoming launches, we expect a strong year ahead and beyond in consumer. Collectively, we anticipate these combined cyclical and idiosyncratic trends to return us to a solid growth path this year. So in closing, the relatively favorable position in which we find ourselves coming out of one of the worst downturns the industry has ever experienced is not by chance but rather a reflection of our fiscal and operational discipline, commitment to the success of our customers, and our investments for the long term. And while I'm excited about our prospects for 2025, I'm even more excited about the longer-term opportunities across numerous concurrent secular growth areas including automation, digital healthcare, electrification, automotive data center, and many, many more. A common request from our customers across our many diversified applications is that we help them tame the increasing complexity by bringing more complete solutions to them. A reflection of our robust technology stack and stellar customer reputation. In stepping up to our customer's challenge, we continue to push the edges by investing vigorously in our world-class analog mixed signal and power portfolios, and integrate higher levels of supporting digital and software into our solutions to meet our customers at the application layer. And so with that, I'd like to pass the call over to Rich. Richard Puccio: Thank you, Vince, and let me add my welcome to our first quarter earnings call. First quarter revenue of $2.42 billion came in above the midpoint of our outlook for a 1% sequential decrease and a 4% decline year over year. Adjusting for the extra week in our fiscal Q1 2024, however, our Q1 2025 performance represents a 4% increase in our first year-over-year growth since Q2 of 2023. Industrial represented 44% of our first quarter revenue, finishing up 1% sequentially. The improved customer inventory backdrop is benefiting each of our industry segments. In addition, we are seeing stronger demand in our automatic test and aerospace and defense businesses, each of which were up year over year. Automotive represented 30% of quarterly revenue, finishing up 2% sequentially. Our leading connectivity and functionally safe power solutions were each up double digits year over year once again, reflecting secular content growth and greater share position. Communications represented 12% of quarterly revenue, finishing up 6% sequentially. Wireline, which makes up roughly two-thirds of our total communications business, was up double-digit sequentially and year over year, driven by data center infrastructure build-outs fueled by AI demand. Conversely, our wireless revenue continues to see demand challenges. And lastly, consumer represented 13% of quarterly revenue, finishing down 15% sequentially reflecting seasonal late. Our second consecutive quarter of robust year-over-year growth reflects our greater share and stronger content position across a diversified list of applications. Now on to the rest of the P&L. First quarter gross margin was 68.8%, up 90 basis points sequentially driven by favorable product mix. OpEx in the quarter was $687 million, up $32 million sequentially resulting in an operating margin of 40.5%. All told, non-operating expenses finished at $58 million and the tax rate for the quarter was 11.8%. All told, adjusted EPS was $1.63, at the high end of our guided range. Now, I'd like to highlight a few items from our balance sheet and cash flow statements. Cash and short-term investments finished the quarter at $2.7 billion and our net leverage ratio decreased to 1.1. Inventory increased $27 million sequentially as we replenish the die bank of our fastest turning products. Days of inventory increased to 176 while channel weeks moved lower and remained below our target of seven to eight weeks. The trailing twelve months, operating cash flow and CapEx were $3.8 billion and $656 million respectively. We continue to expect CapEx for fiscal 2025 to decrease from 2024 and fall within our long-term model of 4% to 6% of revenue. Free cash flow over the trailing twelve months was $3.2 billion or 34% of revenue. And during the same time period, we have returned more than $2.4 billion to shareholders through dividends and share repurchases. As a reminder, we target 100% free cash flow return over the long term using 40% to 60% for our dividend, with the remainder used for share count reduction. As Vince mentioned, we announced an 8% increase to our quarterly dividend to $0.99 from $0.92. In addition, our board is authorizing an incremental $10 billion for share repurchases resulting in roughly $11.5 billion of remaining buyback potential under our current program. Moving on to guidance. Second quarter revenue is expected to be $2.5 billion plus or minus $100 million. On a sequential basis, at the midpoint, we expect industrial to lead our growth and automotive to grow, while communications and consumer decline. Operating margin is expected to be 40.5% plus or minus 100 basis points flat sequentially due to a notable uptick in variable compensation. Our tax rate is expected to be 11% to 13% and based on these inputs adjusted EPS is expected to be $1.68 plus or minus $0.10. Before passing it back to Mike to begin our Q&A session, I'd like to address the near-term backdrop. Overall, our business continues to improve off our Q2 2024 trough in what continues to be an uncertain macro environment. We saw further order improvement and a positive book to bill during Q1. Importantly, booking strength was driven by industrial and automotive, our two largest end markets. Given this trend and the exciting product cycles Vince described, I'm confident we will return to long-term model growth in 2025 and believe we are well-positioned to capture additional upside should macro conditions improve. To you, Mike. Michael Lucarelli: Thanks, Rich. Get to the Q&A session. We ask that you limit yourself to one question in order to allow for additional participants on the call this morning. If you have follow-up questions, please re-queue and locate your question if time allows. With that, we are ready for the first question, please. Operator: If you have a question, for those participating by telephone dialing, please press star one one on your phone to enter the queue. If your question has been answered and you wish to be removed from the queue, please press star one one again. If you're listening on a speakerphone, please pick up the handset when asking your question. We'll pause for just a moment to compile the Q&A roster. Our first question comes from Joseph Moore with Morgan Stanley. Your line is open. Joseph Moore: Great. Thank you. Wanted you to talk about the puts and takes in the auto market. You know, China seems to be the strongest region. Can you talk about how that affects you guys if there is an ongoing shift in the center of gravity towards China? Does that have any impact on pricing, margin, or potential for you guys? Richard Puccio: Sure. Joe, I'll take that one. This is Rich. Let me give you a little color on what we're seeing in auto. Starting with Q1, you know, revenue came in better than expected driven by Asia, which we've talked about, you know, continued strength in China. As we've talked about in our recent calls, we have flagged that we have stronger share and content position at major Chinese EV OEMs with multiple products, again, including our audio and video connectivity solutions, functionally safe power, and BMS. This is coming through in results and we expect it to continue into Q2. As for the impact of a change in center, you know, we continue to see strong results right from a, you know, three straight quarters of double-digit growth in China being led by auto. In addition, and what we can talk about this, we've seen growth in the other parts of the China business, but the auto is continuing to lead. Vincent Roche: I've been saying for a long time, Joe, that as long as there is a market for high-performance technologies, that ADI's technologies would continue to be relevant and that is the case. We see it in automotive. We see it in the industrial sector. And, you know, we're getting well paid for the quality of the technologies that we're bringing. So you know, it's clearly a competitive market particularly at the kind of middle low ends. With indigenous suppliers coming on stream. But given the high-performance trust in our portfolio, we were getting rewarded for the capabilities that we bring at the system level for our customers. Joseph Moore: Thanks, John. Thank you. Operator: Thank you. Our next question comes from Vivek Arya with Bank of America Securities. Your line is open. Vivek Arya: Thanks for taking my question. Rich, just to clarify, what is long-term model growth that you expect to return to this year? And then, Vince, my question is for you. You mentioned that the inventory levels have largely normalized. Is that at distributors? Is that at OEMs? Also, does it apply to all end markets or mostly to industrial? Basically, how does that inform us about how ADI can, you know, feel about demand visibility and growth over the next handful of quarters? Vincent Roche: Thank you. Yeah. Maybe I can take the second part of the question first, Vivek. So we are seeing the normalization across the direct as well as distribution channels. And in pretty much every part of our business, including we were very, very encouraged by the recovery in industrial bookings. And that's a very, very important part of ADI's businesses. At its peak, it was a little over 50% of the total ADI revenue stream. So we're seeing monitor also, by the way, customer inventories. Our top customers. So we see normalization across segments, across customers, both big and small. We've also, by the way, kind of a bellwether for the general base of customers, you know, outside the top few hundreds, would be our mass market or a broad market. We've also started to see recovery there. Richard Puccio: Yeah. And it's an Vivek, when I talk about the long-term model, I'm talking about the published range at 7% to 10%. Although, I think as we've talked about as the macros turn, I think there's opportunity for us to capture even more growth than that. I think your one part, three-part question, Vivek, talked about what we think from here, a kind of growth back half of this year. I think we knew that is how do you think about seasonality as you get to Q3 and Q4. Again, this is not guidance for Q3, but I'll give you kind of what we see as trends. Typically, our last ten years for our third quarter, you know, our third quarter industrial auto and comp are usually flat plus or minus a little depending on where you're on the cycle. Given what Vince was saying about industry normalizing, new wins coming on, I think those markets should be flat up. So I think the higher end of what normal seasonality is, for those businesses. On the consumer side, we typically start your holiday build which means you start growing 5% to 10% in Q3. Now, obviously a lot of macro crosscurrents. It's really like the cocktail out there on the macro side, which could be a second half. We'll update you in ninety days what we really think about Q3. Your next question, please? Operator: Thank you. Our next question comes from Tore Svanberg with Stifel. Your line is open. Tore Svanberg: Yes. Thank you. I had a question for you then. You know, ADI is in a pretty unique position because of your hybrid manufacturing model. And I was just wondering, you know, given all the political turmoil, the geopolitical turmoil that's going on right now, how are you thinking strategically about that hybrid model because obviously, you know, you're working with a very important partner in Asia, but then obviously also do some of your own internal manufacturing. So yeah, how are you thinking about how this is gonna play out in the next few years? Vincent Roche: Thanks, Tore. Well, I think in times of great turbulence, diversity is a great benefit. Diversity of markets, diversity of products, diversity of customers and geographies. So I think, you know, I feel good in terms of our ability with that diversity to solve two problems essentially. One is diversity gives us optionality. But it also gives us resiliency. And, you know, by the kind of end of 2026 and the early 2027, we will have secured at least dual sourcing for the entire product chain of ADI. So about 95% of the products, you know, we'll have at least dual sources. And, you know, we've obviously desensitized geographic centricity over the last few years. We've invested in our fabs internally in America, in Europe, and we've worked with our partners as well to get at least two geographical sources for the products that we procure from our partners externally. So I think, you know, we're in a good position as a company to make sure that, you know, overall, we've internally got twice the capacity we had at the start of the pandemic. And as I said, we've secured also additional supply in new sources, new fabs, with existing partners. So I think we're in a very, very good position to weather whatever turbulence might come our direction. Tore Svanberg: That's great color. Thank you, Vince. Richard Puccio: Thanks, Tore. Operator: Thank you. Our next question comes from Chris Danley with Citi. Your line is open. Chris Danley: Hey, thanks guys. I guess just to dig into the industrial strength. Can you just talk about where that's coming from? Is this mostly inventory replenishment? Is it mostly improved demand? Is it both? And then, you know, how did bookings trend during the quarter? Was the linearity pretty steady, or was there a spike? Or just a little more color there would be great. Thanks. Richard Puccio: Sure, Chris. I'll jump in on that. So on the industrial, if we take a step back, you know, we've grown this business now sequentially for three straight quarters. Off of what we said was our trough in Q2. And then as for Q2, we actually expect industrial to be the fastest growing market. So we feel pretty good that our recovery is taking shape. And really could accelerate if the macro improves. For Q1 specifically, and we've talked about this in a couple of quarters, we saw continued strength in ADA and in the automatic test equipment, and then what we started to see from a positive perspective is stabilization across automation, healthcare, and energy, which I think has been important. And then in Q1, one of the things that we've talked a bunch about on prior calls is watching for the pickup in the broad market. We started to see some of that. In fact, the pickup in the broad market drove much of the upside relative to our initial expectations, which gives us confidence to begin shipping in line with end demand. So if you think about, you know, we've talked about in prior calls that, you know, we took a significant amount of inventory out of the channel during 2024, about $300 million. Most of that impacted the industrial market. So as we look at our growth trajectory, shipping more to sell through into the channel, will be a tailwind for industrial as well. Vincent Roche: Yeah. As you know, the industrial sector is largely served through the distribution channels. So you know, with leanness there, demand recovering, I think both of those two concurrent streams are tailwinds for the business. Richard Puccio: Yeah. On the booking side, bookings have improved in industrial in Q1 versus Q4. Pretty much across all the areas with the biggest strength obviously in ATE and ADA as we talked about. And we think it'd also be our fastest growth market in Q2, and that's supported by the bookings. Thanks, Chris. Operator: Thank you. Our next question comes from Joshua Buchalter with TD Cowen. Your line is open. Joshua Buchalter: Hey, guys. Thank you for taking my question. I wanted to follow-up on the previous one. I think you mentioned in the prepared remarks inventory levels in the channel moved down and I think they entered the quarter already below your seven to eight weeks target. Does either the April quarter guidance or the fiscal 2025 initial outlook of being in your target range include any sort of channel refill and I guess what signals do you guys need to see before you would wanna more clearly get back into that seven to eight week range? Thank you. Richard Puccio: Yeah. So go ahead. So the current guide for Q2 has us shipping to sell through, so not adding into the channel. And I'll tell you for me for the benchmark and we talk to our distribution partners pretty regularly is if we're fulfilling customer requirements and we're not getting any escalations, we're feeling pretty comfortable right now operating below the seven weeks seven to eight weeks we've had historically. You know, balance that out, we're carrying a bit more inventory on our own books, which gives us some flexibility particularly given the amount of the inventory we're carrying in DieBank. Which allows us to be quicker to respond. So near to medium term, I don't expect that we would be adding back to the channel but we certainly do not wanna go any lower. Vincent Roche: Yeah. I think just to add a bit of color to what Richard said as well, the centralization of inventory management I think, has served our customers very well. Customers of all sizes over the past what is essentially now five years of this of the old cycle. So we'll continue doing that, and that will be a critical guide as we think about how we modulate, you know, channel inventories over time. Joshua Buchalter: Very helpful, caller. Thank you. And congrats on the results in the cocktail of uncertainty. Vincent Roche: Thank you. Operator: Our next question comes from Christopher Rollin with Susquehanna. Your line is open. Christopher Rollin: Hey, guys. Thank you for the question. Mine is around two very specific opportunities that you've talked about in the past. One is optical connectivity, and then the other is AI power. If you have any developments in those products or markets, would love to know those, or maybe it's just playing out like you thought it would. But we'd love to know how interest orders, etcetera, are going for those products. Vincent Roche: Yeah. Thank you. Well, I'd say first and foremost, our opportunity pipeline has been growing steadily in this AI-driven infrastructure world. And, you know, we've been a long-term player in this electro-optical interface category, you know, where we provide these very precise high compute throughput control systems for stabilizing the electro-optical modems. And, you know, we've just introduced our 1.6 terabit which is very much the benchmark for throughput in these systems today, of course, those speeds will continue to increase. The sophistication of what we build will continue to grow as well. So that's been a very good business, a high growth business for ADI for many, many years, and it predates the AI build-out of the IT build-out AI infrastructure. Our power technologies really straddle two different areas. One is, if you like, the power control systems that are important for the overall operation of a data center at kind of the board level, the server level. And the other is, and a good example, by the way, of that power control will be these hot swapping reset generators and so on. These very, very tough analog problems need to be solved. The second part of the power story is the delivery of energy to the GPUs, the chip systems themselves. And, we're going to production in the second half of this year, with the vertical power technique with one of the big hyperscalers. And we have other designs in train that will come on stream as well, I believe, in the 2026 period. Christopher Rollin: Fantastic color there. Thank you so much. And maybe just kind of playing into these kind of new products that are emerging here. Are there any new other new products to call out? New customers? New end markets, any of these kind of free options, as I like to call them, that are emerging for your company. And anything you can point to, anything new that maybe you haven't had before any new opportunities? Vincent Roche: It depends on, you know, how far into the future you want to go, but, you know, let me give you a couple of real-time examples here. I mentioned in the prepared remarks the convergence of wellness-based healthcare solutions with the consumer sector. We see that the interest in building those systems out is becoming, I would say, very, very active. We're well-positioned as a company because we've been building the sensory and signal processing technologies for a long, long time. So I would call that out as an area with a good spectrum of customers across many geographies. And many, many different types of healthcare modalities that need to be measured at the clinical grade level in incidentally, areas like continuous glucose monitoring. Being able to do that in a closed-loop system, both the input and the output. So I think that is an area that we're excited about, but we've a lot of good technologies that are being deployed at faster rates into that area. And if you want to go really into the future, you know, there is light beginning to appear in the whole quantum computing world, and we're at the early stages of building control systems, if you like. Precision control systems for these very, very complex computing elements. Christopher Rollin: Very cool. Thank you so much. Michael Lucarelli: Hey, Chris. As a reminder, if there's any additional questions from people who've asked questions, please re-queue your some extra time. Otherwise, we'll go to our next question. Operator: Thank you. Our next question comes from Harsh Kumar with Piper Sandler. Your line is open. Harsh Kumar: Yeah. Hey, guys. I just wanted to hit up on the quote-unquote call for the bottom. I guess you're calling that. Guess what is the confidence level that this is not a head fake? I know you're talking about increased orders and normalization of inventory, but there's a lot of geopolitical movement. There's a lot of tariffs. Help us understand why the confidence level is so high that we've reached the bottom and this isn't just some kind of headache. Thank you. Vincent Roche: Well, I think, you know, first and foremost, we have a lot of conversations with a lot of customers. You know, we've tens of thousands of customers in our portfolio. We pay attention to the signal that matters to us most is sell-through. So POS is how we, that's where we focus and that POS signal is how we plan our supply at ADI, how we run our business and run our supply system. So that's first and foremost. I think, you know, we are seeing the stabilization in the business and growth in certain areas right across the spectrum. And then there is geographically, there is a diversity of progress as well. I'd say Japan is most muted. America and China are strongest. I would say Asia Pacific is strong, and Europe is somewhere between, you know, between where Japan is and where the rest are. So but that's essentially how we view the work. As we said in the prepared remarks, what's incalculable here in our thinking is the effect of any potential geopolitical turmoil, trade war, and so on and so forth. So that I think, will be the governor ultimately. During this year as to the rate of recovery. But I have a strong conviction that in a new cycle in the semi sector uncertainty in aviation business. Harsh Kumar: Thank you for the color. Thanks. Michael Lucarelli: Thanks, Harshal. I'm going to our last question, please. Operator: Thank you. Our next question comes from Tore Svanberg with Stifel. Your line is open. Tore Svanberg: Yeah. I just had a follow-up on the, you know, conviction in growth there. You know, typically, when we go through these cycles, I think customers, they sort of hold off buying new products on sort of the older products have cleared out. And I'm just wondering if there's some of that going on. I mean, I guess that really relates to your win conversion rate. So, you know, any comments you can make on that conversion rate really starting to play out would be really helpful. Thank you. Vincent Roche: Yeah. Well, for example, Tore, the strength we're seeing in ATE markets, in the automotive market, for example, in areas like new data center modalities. Those areas are largely driven by a lot of new products. So I would say, there's three examples of where new products are making a huge difference. In fact, they're also with each new generation, we're capturing more ASPs. So, you know, we've often shared with you our famous vintage chart which shows the age of the portfolio. We measure very, very carefully within that vintage chart the contribution of newer products within a three and ten-year period as to what's going on. But I can tell you the conversion rate, the introduction of new parts, and the capturing of opportunity with new parts is strong. New products and new solutions. And, you know, obviously, we've got also a very strong franchise. Our legacy products tend to get pulled by these new anchor products that we're building. I'd say overall, I'm pleased with the effectiveness of our R&D spends and how we're capturing and creating new markets and new applications. Tore Svanberg: Very helpful. Thank you. Operator: Thank you. I'm showing no further questions at this time. Michael Lucarelli: Alright. No problem. I think we answered all the questions then. Thanks, everyone, for joining us this morning. A copy of the transcript will be available on our website. Thanks for joining and your continued interest in Analog Devices. Operator: This concludes today's Analog Devices conference call. You may now disconnect.

Operator: Good morning, and welcome to the Analog Devices Fourth Quarter Fiscal Year 2024 Earnings Conference Call, which is being audio webcast via telephone and over the web. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would like to now introduce your host for today's call, Mr. Michael Lucarelli, Vice President of Investor Relations and FP&A. Sir, the floor is yours. Michael Lucarelli: Excellent. Good morning, everybody. Thank you for joining our Fourth Quarter Fiscal 2024 Conference Call. Joining me on the call today are ADI's CEO, Vincent Roche, and ADI's CFO, Rich Blue Shield. All of our materials can be found at investor.analog.com. Onto disclosures: Information about this discussion includes forward-looking statements, which are subject to certain risks and uncertainties as further described in our filings with the SEC. Actual results could differ materially from the forward-looking information as these statements reflect our expectations only as of this call. We undertake no obligation to update these statements except as required by law. In terms of gross margin, operating and non-operating expenses, operating margin, tax rate, EPS, and free cash flow, comments today will be on a non-GAAP basis, which excludes special items. When comparing our results and historical performance, special items are also excluded from prior periods. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures and additional information about our non-GAAP measures are included in today's earnings release. Please note, references to EPS are on a fully diluted basis. And with that, I will turn it over to ADI's CEO and Chair, Vincent Roche. Vincent Roche: Thanks very much, Mike, and a very good morning to you all. Our first quarter results reflected the continued steady recovery from our second quarter cyclical bottom with revenue, operating margin, and earnings per share all finishing above the midpoint of our outlook. For the full fiscal year 2024, revenue finished at $9.4 billion with earnings per share of $6.38. The headwinds we faced in fiscal 2024 were most notably pronounced post-pandemic inventory digestion and the challenging macro backdrop muting demand recovery. Despite the external challenges, however, our business model and disciplined execution delivered an impressive 41% operating margin for the year and a free cash flow margin of 33%, up from 29% in fiscal 2023. Importantly, we continued investing in key value generation and capture initiatives to better position ADI to solve our customers' most difficult challenges at the Intelligent Edge. In R&D, which is our first call on capital, we continue to strengthen our world-class analog foundation while extending the scope of our innovation capabilities with investments in digital software and AI. Those investments resulted in, for example, last month's launch of ADI's new CodeFusion Studio software development platform, creating a resource-rich hub and ensuring a programming environment for embedded co-development in support of our analog mixed signal power and digital franchises. To better secure the increasingly connected intelligent edge, we also launched the ADI Assure Trusted Edge Security Architecture, which will enable cybersecurity capabilities on ADI products. The addition of new tech stack capabilities to our tremendous analog foundation enables us to deliver ever more sophisticated innovations for our customers. Our intense focus on R&D is reflected in the double-digit growth of our design win pipeline during fiscal 2024. That growth was enhanced by momentum in our Maxim revenue synergies pipeline across such areas as GMSL, healthcare, and data center power, putting us firmly on a path to achieving our goal of $1 billion in revenue synergies by 2027. Now, to accelerate pipeline growth and conversion, we continue to evolve our digital customer engagement platforms to support a greater range of technical expertise and customer needs. We also expanded our cadre of field engineering experts to provide world-class support and service to our global customer base. Our customers value our thought leadership, the breadth and depth of our cutting-edge technology stack, the strength and resilience of our supply chain, and our service and support integrity. Let me share a few examples with you now. In Industry 4.0, semiconductor content as a percentage of CapEx investments continues to expand rapidly as factories integrate IT and OT to connect and software-define the factory floor. This is creating tremendous growth for ADI's sensor-to-cloud automation solutions, with a large number of customers leveraging our sensing, power control, and deterministic Ethernet technologies. On the factory floor, our intelligent motion and positioning solutions are being designed into robotic systems by several large customers, expanding our content per robot by three times. In our Instrumentation and Test business, ADI's cutting-edge analog signal and power capabilities are the foundation for the leadership position we've established in the AI-related SoC and high-bandwidth memory test market, where our content per tester stretches into the hundreds of thousands of dollars. Now looking ahead, we're developing additional mixed signal and digital capabilities to further reduce test time and power requirements, which we believe will result in more than 20% additional ADI content per test. Within the healthcare sector, our precision signal processing and real-time connectivity solutions are critical to the rapidly expanding surgical robotics market. And in the fast-growing continuous glucose monitoring space, we have won multiple opportunities across several customers. Our unique digitally enabled analog front-end solutions increase the accuracy and power efficiency of sensors and enable a better patient experience by extending battery life from days to weeks. Aerospace and defense has remained our most resilient industrial segment during this downturn, with stellar design win pipeline growth. We expect revenue growth to accelerate to a double-digit level next year due to increasing global defense budgets and the proliferation of space communication systems that rely on our higher value integrated RF modules and subsystems. Within automotive, the performance advantages of our battery management systems are driving substantial pipeline growth among OEMs. In addition, we're also seeing momentum for these solutions in electrical grid storage systems. These trends, combined with recent wins, give us confidence that our BMS revenues should return to growth in fiscal 2025 with meaningful contributions from our higher value wired solution. The proliferation of higher content vehicles that use more power management connectivity and an increasing number of sensor platforms is expanding our content across all vehicle types, combustion engines, hybrids, and indeed full EVs. This trend drove our GMSL and A2B connectivity and functionally safe power franchises to new high watermarks in fiscal 2024, and with a record design win pipeline, we expect this growth to persist. Michael Lucarelli: Notably, we added to our portfolio of connectivity solutions by launching our Ethernet to the Edge bus solution, or U2B, which is an enabler of the software-defined vehicle vision. And out of the gate, we have design wins with several major OEMs, including BMW. In communications, we've seen a positive inflection in the wireline market and expect that growth to continue in FY 2025 and beyond. Our confidence is based on significant new wins, including a high precision controller for the optical module and the high-performance compute leaders' AI systems, and our next-gen power solutions, which will begin shipping later in 2025. We're also experiencing tremendous demand from leading data center customers for our new innovative hot swap solution, which significantly extends power and control capabilities for AI-based servers. In consumer, new wins coming to market are driving strong growth. We expect this momentum to continue in the years ahead, given new wins across power, audio, optical, and touch in portable applications at multiple key customers. We've also seen growth in wearables. For example, our VSM platform's superior accuracy at lower power is becoming ever more critical for customers seeking to differentiate by capturing and processing more biomarkers. We've seen design momentum accelerate and content opportunities expand at wearable market leaders as well as in disruptors bringing miniaturized form factors to market. In wearable acoustic systems, our combination of ultra-low power and neural processing with application-specific audio processing algorithms is enabling next-generation noise cancellation and hearing augmentation. We're leveraging these technology innovations in several B2B markets. In addition, turning now to manufacturing, we've invested $2.7 billion in CapEx since acquiring Maxim to increase our capacity and enhance resiliency. We also expanded our foundry partnership with TSMC earlier this year to secure additional 300-millimeter fine-pitched technology capacity at their Japan fab. These investments enable a more flexible hybrid manufacturing model, further insulating our supply from regional shocks and increasing our swing capacity to around 70% of revenue in the coming years. This unique ability helps us to capture the upside in strong demand backdrops and better protect our gross margins during more challenging times. So in closing, I'm very proud of how ADI has managed through one of the worst inventory digestion cycles our industry has ever seen. While the macro backdrop presents challenges, I'm confident in our continued recovery in fiscal 2025. And with that, now I'll pass it over to Rich. Richard Puccio: Thank you, Vince. And let me add my welcome to our fourth quarter earnings call. I'll start with a brief recap of fiscal 2024 results. Revenue of more than $9.4 billion, down from the record fiscal 2023, driven by broad-based inventory digestion and sluggish end demand. Gross margin of 67.9% reflects lower revenue factory utilization and mix headwinds. Decline in revenue and gross margins were partially offset by lower operating expenses, which resulted in an operating margin of 40.9% and EPS of $6.38. Moving to fourth quarter results, revenue of $2.44 billion came in above the midpoint of our outlook for a 6% sequential increase, a 10% decline year over year. Industrial represented 44% of our fourth quarter revenue, finishing up 2% sequentially and down 21% year over year. Continued strength in AI-related test, aerospace and defense, and a return to sequential growth in automation more than offset slower end demand driven by a weaker macro backdrop. For the full year, industrial decreased 35% from a record 2023, with every major application declining double digits except aerospace and defense, which significantly outperformed the rest of industrial. Automotive represented 29% of quarterly revenue, finishing up 4% sequentially and down 2% year over year. This was notably better than our original expectation due to steadily improving demand from China throughout the quarter. For the year, automotive declined 2% from a record fiscal 2023 as double-digit growth across our functionally safe power and leading A2B and GMSL connectivity franchises were offset by broad-based inventory digestion and production headwinds. Communications represented 11% of our quarterly revenue, finishing up 4% sequentially and down 18% year over year. Stronger demand from data center customers for our solutions drove low double-digit sequential growth in our wireline business, which more than offset the decline in wireless. For the year, communications decreased 33%, and similar to the fourth quarter, we saw a relative outperformance in our wireline business over wireless. Lastly, consumer represented 16% of quarterly revenue, finishing up 22% sequentially and 31% year over year, driven by higher share in wearables, premium handsets, and gaming applications. For the year, consumer decreased just 1% with double-digit growth in portable applications, balancing double-digit declines in our prosumer business, which is more industrial-like in nature. Now on to the rest of the P&L. Fourth quarter gross margin was 67.9%, flat sequentially as product mix headwinds offset modestly higher utilization rates. OpEx in the quarter was $655 million, up approximately $35 million sequentially, driven primarily by merit increases, which resulted in an operating margin of 41.1%. Non-operating expenses finished at $55 million, and the tax rate for the quarter was 12.1%. All told, EPS was $1.67, which finished above the midpoint of our outlook. Despite a tough year, we took decisive action to strengthen our financial position, and I'd like to call out a few results from our balance sheet and cash flow statement. We ended the quarter with approximately $2.4 billion in cash, short-term investments, and a net leverage ratio of 1.2. Inventory finished approximately $20 million higher than the third quarter, while days of inventory decreased to 167. Channel inventory finished slightly below the low end of our seven to eight-week target as we continue to prudently manage our supply. Operating cash flow for the quarter was more than $1 billion and more than $3.8 billion for fiscal 2024. CapEx was $165 million for the quarter and $730 million for the year, resulting in fiscal 2024 free cash flow of more than $3.1 billion or 33% of revenue. During the year, we returned $2.4 billion to shareholders via $1.8 billion in dividends and $600 million in repurchases. Now moving on to guidance for the first quarter. Revenue is expected to be $2.35 billion, plus or minus $100 million. Notably, this implies year-over-year growth when compared to a normalized 13-week first quarter of fiscal 2024, a good indication that we're past the trough and in gradual recovery. We expect sell-in to be roughly equal to sell-through in this quarter. At the midpoint, we are expecting a seasonal decline on a sequential basis as noted last quarter. Industrial, automotive, and communications are each expected to decline by low single digits, with consumer down around 15%. Operating margin is expected to be approximately 40%, plus or minus 100 basis points. Our tax rate is expected to be 12 to 14%. And based on these inputs, EPS is expected to be $1.53, plus or minus 10 cents. I'll conclude by noting a few items as we begin the new fiscal year. As Vince mentioned, we made great progress building a more agile and resilient hybrid manufacturing model. As such, we expect our CapEx spend will moderate back to our long-term model of 4 to 6% of revenue in fiscal 2025. We expect this normalized CapEx level and planned receipt of investment tax credits tied to both the US and European CHIPS Acts will provide tailwinds to fiscal 2025's free cash flow. Importantly, while we have delivered on our commitment to return 100% of free cash flow since our Maxim acquisition, fiscal 2024's return was lower due to our decision to increase balance sheet cash during this period of macroeconomic uncertainty and to help us extinguish $400 million of debt coming due in fiscal 2025. That said, investors can expect us to revert to our targeted return of 100% of free cash flow in fiscal 2025. I'm now going to turn it back to Mike for Q&A. Michael Lucarelli: Thanks, Rich. Let's get to the Q&A session. I ask that you limit yourself to one question to allow for additional participants on the call this morning. If you have follow-up questions, please re-queue. The waiting question time allows. With that, we have our first question, please. Operator: Thank you. For those participating by telephone, dial in. If you have a question, if your question has been answered and you wish to be removed from the queue, please press star one one again. If you're listening on a speakerphone, please pick up the handset when asking your question. We'll pause just for a moment to compile the Q&A roster. And I show our first question comes from the line of Chris Danley from Citi. Go ahead. Chris Danley: Hey. Thanks, guys. Just a little color on the auto strength. Can you talk about how big China is as a percent of your auto business? And then within that, how much of the strength was from, say, EV versus ICE or all these EV startups that we're hearing about from China? Thanks. Richard Puccio: So I'll give you a little bit of the perspective, Chris, on the auto near term. So on the last call, we expected the sequential decline in Q4 given the drop we talked about in bookings during Q3. An adjustment to production for multiple of our OEMs. However, toward the end of Q3, bookings started to improve and that continued throughout our Q4, with stronger demand in China reflecting EV volume growth, share gains, and content growth. As for the other geos, we saw broad weakness, but upside in the U.S., which returned to sequential growth driven mainly by our BMS and wireless BMS portfolio. Secular demand for ADAS and next-gen infotainment continues to drive strength globally for our functionally safe power, audio, and video solutions. Content and share growth in these areas have helped offset broad inventory headwinds resulting in a shallower correction in other end markets. I'd also note that while BMS is still facing inventory headwinds broadly, we saw a strong uptick in China reflecting the expanded share we talked about on our Q2 call compounded by volume growth in the region. BMS also improved in the U.S., including growth for our higher content wireless solution, which is now 10% of total BMS. And as Vince mentioned, design win activity was strong in 2024, giving us confidence that BMS will return to growth in fiscal year 2025. Vincent Roche: A little more color, Chris, than what Rich has just said. So you know, we've got a really high-performance portfolio. We've got many, many different SKUs, if you like, in that portfolio. And, you know, we're playing the high-performance game with the big players in China for merit. So that's the same business there. Michael Lucarelli: And they've got some comments on the US-China kind of relative what's the mix of China. Our China business looks a lot like ADI enterprise where industrial are more of the two biggest percent of our revenue in China. I think about 80% of the China business. Comms is in the teens, consumers below 5%. Chris Danley: Thank you. Operator: And I show our next question comes from the line of CJ Muse from Cantor Fitzgerald. Please go ahead. CJ Muse: Yeah. Good morning. Thank you for taking the question. Vince, you talked about a number of company-specific drivers that should allow you to outperform in calendar 2025. So I was hoping you could kind of use that as a backdrop and then maybe layer in kind of your thoughts on how the cycle will kind of emerge from today's trough. And you know, what your kind of thoughts are in terms of pushing, you know, business through 2025 and 2026. Thank you. Vincent Roche: Yeah. Thanks, CJ. So yeah, obviously, we've already stated our first quarter will be down, so we expect to start getting back to a positive growth trajectory in the second quarter. I think during 2025, if I were to kind of rank the market recoveries, you know, I think it'll be led by industrial. We have very healthy customer inventories. The channel is below seven weeks, and that's a big part of the supply chain into the industrial sector. You know, you couple that with the green shoots that we've mentioned already in areas like AI, tests, and aerospace and defense, which I called out in the script. So I think the compare is easier overall. And, you know, as a result, I think industrial, given the signs we see, will recover briskly in 2025. I've been in consumer, we have a much more diversified business than we've ever had. We've better portfolio than we've ever had. Inventory is normalized and we're already seeing the benefits. We saw it in our in our 4Q results, three and 4Q results, the strength of our consumer business. I think next is the comms business. You know, it declined by over 30% in 2024. And I think that was really an inventory digestion too. So we feel at this point that we're through the worst of the supply normalization. And as we talked about in the scripts, we're beginning to see steady demand improvement, particularly in wireline. Driven by the build-out of these new externalized intelligence systems. And you know, the AI infrastructure. So we're not seeing much on the wireless side. We've I think at a low point in wireless during 2024. So I think it'll all depend on the carrier CapEx investments in 5G moving ahead. Last but not least, the automotive sector. We expect to see continued momentum in areas of function, we say power, the connectivity things that I spoke about, and, essentially, it's globally to be driving share and penetration across all the different types of platforms. So you know, we've had a tough year in 2024 in BMS. 2025, we had expect to see that get back to a better shape, get back to a growth pattern. And you know, given that all of us down just 2% in 2024, it's a tough compare moving ahead. But overall, we feel that we'll be on a solid growth path as well. So that's the ranking, CJ, it's a long answer to a simple question. Thanks, CJ. CJ Muse: Thank you. Operator: And I show our next question comes from the line of Vivek Arya from Bank of America Securities. Please go ahead. Vivek Arya: Thanks for taking my question. My question is on Q4 Industrial and then how it sort of shaped fiscal 2025. I think for Q4 industrial, if I'm not mistaken, you had expected sales to grow high single digit. I think they went up only modestly. And then you're guiding Q1 Industrial down again sequentially. So Vince, my question is Industrial really out of the woods, what helps it grow above seasonal? Because just assuming seasonal growth for the rest of fiscal 2025 may not be sufficient, right, to really grow fiscal 2025 at a strong pace. So just maybe help us you know, understanding what's happening in the industrial market and when do you expect it to start growing above seasonal trends next year? Richard Puccio: So, Vivek, I'll take that and so Q4, as you mentioned, was a bit lower than we expected. Driven largely by weakness in the broad market and our decision to reduce channel inventory during the quarter. Now as you know, reducing channel inventory has an outsized impact on our industrial business. At the same time, we did see continued strength in ADAS instrumentation and test and a return to sequential growth in automation. If you remember, in the prior two quarters, we've seen significant declines in automation. So to see that return to sequential growth was a very positive sign. You know, taking a step back, we've grown industrial sequentially now for two quarters. Of what we said was our trough in Q2 of 2024. So we feel pretty good that the recovery is still unfolding for us. And now we're gonna wait and give a bit to see what the macros do. But if I look to 2025, you know, one of the important signals for us continues to be we have been under shipping demand for the better part of 18 months. You know, and if you just normalize that for even our historical patterns, or the market patterns, you know, it would indicate we've under shipped something like 20%. Which is how we get confidence in coming out of Q1's seasonal down, we will start to see growth again in industrial in the remainder of 2025. Obviously, the slope of that will be covered a bit by the macro backdrop. Vivek Arya: Thank you. Operator: And I show our next question comes from the line of Joe Moore from Morgan Stanley. Please go ahead. Shane: Hi. Thank you for letting me ask a question. This is Shane from Morgan Stanley on behalf of Joe Moore. Just on your automotive business, how have customer orders and pricing discussions tracked for the growth areas of your portfolio, such as A2B, GMSL, and functional safe power? And then how have they progressed for the sort of other half of the automotive business? Richard Puccio: So I don't break that into two pieces, I guess. I'll talk about pricing first. So from a pricing perspective so far with customers, it's been largely as expected and continuing to exhibit the stability that we've talked about previously. Right? We continue to focus on the high end where our customers value performance versus price. You know, we can commend ASPs for X the industry average. And that has continued to grow over the cycle. You know, as particularly as we, you know, look across our broad large customers, you know, we're becoming more and more important moving from a essentially, a tier two contracting with tier ones to actually partnering with the OEMs at the early stages of design. You know, and we've talked about before prices set at the design in. Tend to stay pretty fixed throughout a long period of time. So sometimes over a decade on average. Although, there is some volume discounts that come through, so we trade off incremental volume for small decreases in price. And then we do look to mitigate those discounts with our vintage increases on our older products. The other thing that's helping on the pricing stability is we are clearly broadly across costs in our business experiencing inflationary environments, which supports continued stability on the pricing side. Michael Lucarelli: And your company, guys, well, love the pieces of the automotive business. You're right we break it down. We got two One, we call it, like, the growth areas. Vince outlined a bunch of those, GMSL, A2B, functionally safe power, and BMS. They make up about half our revenue in auto. Those grew in 2024 over 10%. The other part of the business, the other 50%, is really more standard product portfolio that goes across all the OEMs all customers, and really goes up and down in production. That piece was down about 10% in 2024. And you fast forward to 2025, I think it was be more or the same? Or we see a lot of growth come from those GMSL, A2B, functionally safe portfolio. And we said a couple of times, I called BMS and returned to growth as well. Vincent Roche: Go next question, please. Operator: Thank you. And I show our next question comes from the line of Tore Svanberg from Stifel. Please go ahead. Tore Svanberg: Yes. Thank you. Vince, I had a sort of bigger picture question, especially as we embark on this new cycle. So as I navigate your website, I just see some more software products. And I'm just wondering as AI continues to move to the edge, what do you see as a differentiation here for Analog Devices? Especially in relation to some of your other analog signal peers? Vincent Roche: Yeah. Thanks, Tore. Well, software is not particularly new to ADI in the sense that, you know, for many decades, now, we've had a vibrant DSP franchise. With a lot of, you know, tool chain capability, a lot of algorithmic capability, but we've begun really, I think, over the last decade, taking a more application view to the world across all our core markets, industrial, automotive, communications, etcetera, etcetera. And, you know, we've begun moving up the stack from the core base of analog signal power technologies. So we use, I would say, more algorithmic technology to kind of, at the copilot, so to speak, with the core franchise. So everything we do in software is essentially supports the cutting-edge strength that we have in the analog mix signal and power solutions. And you know, it's increasingly important for our ADI to present our solutions to our customers in a way that makes us easier and more enjoyable for them to use our solution that could complexity and sophistication of what we bring to them. So, you know, over the last couple of months, we announced two new parts to our software story. One is what we call CodeFusion Studio. And, essentially, what that is is an open-source software development environment that includes software development kits, tools, debuggers, and so on and so forth. And that enables our customers to get access. Know, to be able to embed ADI's analog and digital technology into their end system solutions. And the second piece is, it goes without saying, cybersecurity is top of mind for everybody. So we've released what we call the ADI Assure platform. And, essentially, what it is, it's a new security architecture that enables us to provide a root of trust from the hardware rights into the cloud, so to speak, and to understand the movement the creation and movement of data across that spectrum. So you know, we are spending more on software than we've done. But we're taking a very holistic view and I'd say using software to drive the innovation system of the company, the innovation within our products around our products, and making it easier for our customers to access our solutions. That's it in a nutshell, I think. Operator: Thank you. And I show our next question comes from the line of Stacy Rasgon from Bernstein. Please go ahead. Stacy Rasgon: Guys. Thanks for taking my question. I wanted to ask about gross margins. What are your thoughts on gross margins into Q1 as revenue declines? And do you think the Q1 is the bottom as it does seem like you do think revenue grows off of there? Like, how do we think about the trajectory off of that gross margins in the next year, what does it take to get them back into the 70% plus range? Richard Puccio: Stacy, I'll take that one. So Q4 gross margin was lower than we'd expected due to mix. So with consumer and auto being so much stronger while industrial was weaker, you know, that created some downward pressure because then we had talked about a slight sequential increase, which we didn't see. For Q1, we expected slower slightly lower gross margin given sort of normal factory shutdowns around the holidays. As well as the seasonally lower revenue. You know, if we think about the when will we see sort of the 70% this is gonna continue to be driven by mix and utilization as we grow revenue. Right now, industrial is pretty low mix. And utilization, while no longer decreasing and coming off of our low points back in Q2, remain sort of well below optimal levels. Know, if you wanna think about it from a longer-term perspective, from a revenue view, we'd likely, you know, need revenue in the $2.7 billion plus to start seeing 70%. From a 2025 sort of sequential perspective, as we do, as we mentioned, expect revenue to recover to growth coming out of the Q1 seasonality. We would expect to see gross margin improvement as we work through the back half of the year. And then, obviously, as we've talked about the back half macros will determine how much revenue growth we get and how much incremental margin we see. Michael Lucarelli: Thank you. Operator: And I show our next question comes from the line of Timothy Arcuri from UBS. Please go ahead. Timothy Arcuri: Thanks a lot. Rich, you just mentioned that fiscal Q2 is gonna be up. I'm wondering what you consider normal seasonal to be in fiscal Q2. It seems like it's up about three to four. So that's the first part of my question. And then the second part is, you sort of strip out autos, I wonder, like, how is book to bill if you could sort of, you know, strip out autos versus normal? Is it trending pretty much as you would? Thanks. Michael Lucarelli: Yes, sir. So I'll grab the first question and then go to the book and build question. I was like, I lost the bet to myself. I thought the two key question me with the top three questions were number seven. So yep. That's what that'll go sometimes. But you're right. We keep on seasonality strength. What does seasonal mean into you? It's been a while since seasonality. Usually, you see industrial and auto up. About mid-single digits in Q2. Communication's up some, not as much. Maybe flat up slightly. Well, consumers down a little bit. So overall, you're up about to mid-single digits in a portal company level. Again, that's seasonal trends. There's a wide band. On that, typically how we think about Q2 for a seasonal perspective. Richard Puccio: Yeah. On the booking side, so as we talked about after the decline in Q3 in auto, total bookings returned to growth driven by continued growth in industrial and a rebound in auto. Overall book to bill was below one, which we would say is pretty normal at this point. Reflecting our seasonally lower Q1 outlook. You know, regionally, bookings were up everywhere, excluding the Americas. And that largely reflects the seasonal decline in consumer. Timothy Arcuri: Thanks, Tim. Thank you. Operator: And I show our next question comes from the line of Ross Seymore from Deutsche Bank. Please go ahead. Ross Seymore: Hi, guys. Thanks for letting me ask a question. Vince, a bit of a longer-term question for you. Cycle to cycle, you know, the good news is it sounds like you found the bottom especially on the industrial side. And you mentioned that it was kind of the worst downturn from an inventory perspective in a long, long time. I guess my question is the prior peak, I guess, in your fiscal 2023 is that attainable? And what are the puts and takes to get to that? Because I guess from a big picture question, was that overinflated or was that a realistic target that we should look forward to? And if so, at what time? Vincent Roche: Yeah. Thanks, Ross. Well, I think, you know, first and foremost, our portfolio is in better position than it's ever been. I would say ADI's connection with our customers, big and small, is better than it's ever been. You know, we're investing in believe, in the right areas in the R&D sector. Our pipeline coming out of 2024, it grew double digits year over year. Opportunity pipeline. So I think the company is well positioned. We've also been very, very I would say, taking a very almost purest view to how we flush inventory. So my sense is you know, we've got a supply chain that is well capable of meeting what we believe will be good demand during 2024. To get back to the kind of the 2023 levels, you know, we believe that our business is capable of growing double digits. So, you know, through the rest of the decade here, given the position we've got, the demand that we see, the opportunity pipeline. So and I think know, we will see a good down payment on that future prospect. During 2025. Operator: Thank you. And I show our next question comes from the line of William Stein from Truist Securities. Please go ahead. William Stein: Oh, great. Thanks for taking my question. Vince, I think you mentioned data center power management in the prepared remarks, but I'm hoping you can dig into this a little bit. There's been quite a bit of all very know, what some people call charismatic design win up opportunities in that end market. I know that at least one of the companies you acquired, Maxim, had a significant effort in 48-volt PMEC, and I suspect Linear had something there as well. I wonder if you can comment as to the medium-term opportunity as you all see it and maybe any comment on design win traction there. Thank you. Vincent Roche: Yeah. Thanks, Will. So you know, first off, if you just put the entire data center business in ADI perspective, you know, we have really two elements to our power story. I think one is the power solutions that go around the computing chips, and the rest of the, you know, the server infrastructure. The second piece is the control units, things like hot swapping, supervisory, so on and so forth. We've had good traction of that business a long, long time. We've got some new products coming to market. That will continue to boost us in terms of ASP, share, and so on and so forth. We're also getting good traction with our optical control solutions right up to 1.6 terabits. So that's kind of the landscape of products and technologies that we have. You know, if you're going to win anything in this in these this data center business you've gotta play an ecosystem game. So we play with the processor companies. We're playing with the data center companies themselves. And, you know, again, we're picking our places very, very carefully. We're going for the highest end solutions where we can make a big difference in the energy space. By the way, we're even attaching energy solutions at, you know, kind of the more between the grid and the data sector. So we view this power is just merely part of the an energy solution, and we're looking at that from the intersection with grid right down to the chip. Richard Puccio: Thanks, Will. Can we get to our last question, please? Operator: Thank you. And I show our last question comes from the line of Joshua Buchalter from TD Cowen. Please go ahead. Joshua Buchalter: Hey, guys. Thanks for squeezing me in. Wanted to ask about utilization rates. I think you might be the only company in broad-based semis that called out higher utilization rates this quarter. How should we think about how you're thinking about that trending into fiscal 2025? Are you you know, it sounds like sell-in is matching sell-through. Should we just think about that ramping basically directionally and linearly with your revenue or any other puts and takes we should keep in mind as we think about the impact of margins? Thank you. Richard Puccio: Yeah. So I guess I would start with, you know, from a utilization perspective. We've talked about our agile. You know, one of the reasons we've been able to bring utilization levels up is our ability to swing capacity back into our internal fabs. So I think as I've mentioned, we're still not at anywhere near a normalized utilization rate. Our ability to swing during the downturn has allowed us to continue to grow off the drop that we talked about in Q2. So we have seen two quarters of sequential modest I would say modest sequential increases in utilization and as the revenue picks up as we work our way through best fiscal year 2025, I expect that utilization to continue increase to continue. Michael Lucarelli: Alright. Thank you, Josh, and thanks everyone for joining us this morning. A cockpit transcript will be available on our website. Thanks again for joining the call. Have a great Thanksgiving. Operator: Thank you. This concludes today's Analog Devices conference call. You may now disconnect.

Operator: 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 like to now introduce your host for today's call Mr. Michael Lucarelli, Vice President of Investor Relations and FP&A. Sir, the floor is yours. Michael Lucarelli: Thank you, Kevin. And good morning, everybody. Thanks for joining our third quarter fiscal 2024 conference call. With me on the call today, ADI's CEO and Chair, Vincent Roche; ADI’s CFO, Richard Puccio. For anyone who missed the release, you can find it in relating financial schedules and investor.analog.com. Onto the disclosures, information we're about to discuss includes forward-looking statements which are subject to certain risks and uncertainties as further described in our earnings release and our periodic reports and other materials follow the SEC. Actual results could differ materially from the forward-looking information, as these statements reflect our expectations only as a date of this call. We undertake no obligation to update the statements except as required by law. Revenue, adjusted gross margin, operating and non-operating expenses, operating margin, tax rate, EPS and free cash flow in our comment today will be on non-GAAP basis, which excludes special items. When comparing our results to historic performance. Special items are also excluded from prior periods. Reconciliation of these non-GAAP measures to most directly comparable GAAP measures and additional information about our non-GAAP measures are included in today's release. And with that, I'll turn it over to ADI's CEO and Chair, Vince? Vincent Roche: Thanks very much, Mike, and a very good morning to you all. The stronger demand for a high-performance product portfolio and skillful execution resulted in third quarter revenue of more than $2.3 billion, operating margin north of 41%, and EPS of $1.58, all above the midpoint of our outlook. These favorable results, combined with improved customer inventory levels and order momentum across most of our markets, increase my confidence that our second quarter marked the cyclical bottom for ADI. My optimism remains guarded, however, as challenging economic and geopolitical conditions are limiting a sharper recovery. We continue to balance near-term fiscal discipline with strategic investment in our long-term growth initiatives, positioning ADI to capitalize on the extraordinary opportunities that we see ahead. Now I'd like to draw attention to our industrial end market, which is our largest, most diverse, and most profitable business, generating durable revenue streams that last close to two decades, on average. As our business begins to recover from the pandemic's volatility, we're excited about the tremendous long-term growth opportunities of the industrial market. We offer our customers an unparalleled suite of high-performance solutions stretching from antenna to bits, sensor to cloud and nanowatts to kilowatts. Our extensive technology portfolio, combined with our deep domain expertise and engineering muscle, has enabled us to secure leading positions across the most attractive industrial sectors. Now, with growing digital software and algorithmic capabilities augmenting our cutting-edge analog portfolio, ADI is strongly positioned to solve our customers most difficult challenges in factory and process automation, energy efficiency, secure connectivity and many, many more. To illustrate the power and potential of our industrial franchise, let me share with you a few examples of how our recent innovations are unlocking new revenue streams and positioning us for strong growth in the years ahead. For example, our Instrumentation and Test business, which includes scientific instruments, electronic test and measurement, and automated test equipment is essential to the important scientific and technological advancements of the digital era. Within automated test equipment, for example, our next generation solutions increase channel density and throughput, while reducing energy consumption by up to 30% per system. These are crucial parameters for testing complex, high performance compute GPUs and high bandwidth memory systems for AI. As the AI infrastructure build up remains a priority for global hyperscalers, we expect growth to continue into 2025 and indeed well beyond. Turning now to Aerospace and Defense, which has been our most resilient business during this downturn, ADI's domain expertise and high performance portfolio across orphan microwaves, high speed and precision converters, power and MEMS uniquely positions us to deliver complete edge solutions offering our customers scale, velocity and lower total cost of ownership. As an example, we're building upon our programmable Apollo signal chain platform today to create full software defined RF communications and sensor systems, which has the potential to increase our sound by five times in commercial, defense and aerospace communication systems. Indeed, we see a path to double-digit revenue growth in this sector in 2025, fueled by several high value design wins that are going to production. In Automation, though we've seen a slow recovery to date, we remain strongly confident in its future growth potential as the benefits of increased productivity are ever more clear. Customers are prioritizing enhanced digitalization and IT/OT integration on their factory floors. Their deployments of in-line instrumentation and advanced robotics are driving the need for more sensing, edge processing, secure connectivity, and car management. Within robotics, we're seeing a progression from fixed-arm machines to autonomous and mobile robots to eventually humanoid robots. This evolution creates additional opportunities for a precision signal chain franchise. And sensing, connectivity, and motion-controlled subsystems with fully isolated and efficient power solutions can drive content from hundreds of dollars in robots today to thousands in autonomous and humanoid robots. What is additionally exciting about these advances is their broad applicability beyond factories, such as surgical robots and imaging systems in healthcare. ADI's products have the potential to dramatically improve a surgeon's effectiveness through a more precise surgical experience with lower latency connectivity. Additionally, patients gain the potential benefits of shorter hospital stays and fewer complications. The evolution in robotics is expected to unlock billions of dollars of potential opportunity for a high-performance analog, mixed signal, power connectivity, and sensing solutions. We see the potential for a doubling of our robotics revenue in the years ahead. Turning now to Energy Transmission and Distribution, our customers are modernizing and digitalizing the electrical grid to respond to exponentially accelerating energy demand driven in part by the proliferation of electric transportation and rapid AI adoption. This process is resulting in a grid that is distributed dynamic and bidirectional, a paradigm shift from the past model of linear stable supply. We're working with traditional suppliers and disruptors to enable the necessary intelligence for the new grid from decentralized power plants to the distribution edge. We're leveraging our analog and algorithm capabilities in cutting-edge energy monitoring and management solutions. Additionally, our battery management technology increases capacity and improves energy utilization in the grid's renewable energy storage systems. This reimagined intelligent grid of the future has the potential to expand our return by over $10 billion and creates tailwinds for our energy franchise for many years to come. Given the synergies across our industrial portfolio, our pace of innovation and the emergent signs of market recovery, we're optimistic for our industrial business that has turned the corner and ‘25 will be a robust growth year. So in closing, our investments in high-performance analog solutions are enabling us to intersect with and leverage the numerous concurrent secular trends that transcend the business cycle and will propel us into the future. Our commitment to our customers' success and to impactful innovation will be the path that carries us there, ultimately increasing long-term shareholder value. And so with that, I'm going to turn it over to Rich, who'll take you through the numbers. Richard Puccio : Thank you, Vince. And let me add my welcome to our third quarter earnings call. Third quarter revenue of $2.31 billion came in above the midpoint of our outlook, finishing up 7% sequentially and down 25% year-over-year. Industrial represented 46% of revenue in the third quarter, finishing up 6% sequentially and down 37% year-over-year. Every major application increased sequentially except for automation, which declined at a much slower pace than it had in previous quarters. Automotive represented 29% of revenue, finishing flat sequentially and down 8% year-over-year. We saw continued double-digit growth year-over-year for our industry-leading connectivity and functionally safe power platforms. Conversely, automotive production cuts are extending inventory digestion across customers, particularly impacting our legacy automotive and electrification businesses. Communications represented 12% of revenue, finishing up 10% sequentially and down 26% year-over-year. Slowing customer inventory digestion enabled both wireless and wireline growth sequentially. And lastly, Consumer represented 14% of revenue, finishing up 29% sequentially and increased year-over-year for the first time since 2022. We saw diversified growth across applications with notable strength in portables and gaming. Now let's move from the top line to the rest of the P&L. Third quarter gross margin was 67.9%, up 120 basis points sequentially, driven by higher revenue, higher utilization and favorable mix. Operating expenses in the quarter were $619 million, up modestly sequentially, driven primarily by higher variable compensation. Operating margin of 41.2% exceeded the high end of our outlook. Nonoperating expenses finished at $70 million and the tax rate for the quarter was 10.8%. The net result was EPS of $1.58, which finished near the high end of our outlook. Our financial position is solid and I'd like to call out a few items from our balance sheet and cash flow statement. We ended Q3 with more than $2.5 billion of cash and short-term investments and a net leverage ratio of 1.2. Inventory decreased $51 million sequentially and days declined to 178 from 192. As planned, we reduced channel inventory further this quarter with weeks ending near the low end of our 7 to 8 week target. Operating cash flow for the quarter and trailing 12-month was $0.9 billion and $4 billion respectively. CapEx for the quarter and trailing 12-month was $154 million and $1 billion respectively. For fiscal ‘24, CapEx is tracking to our $700 million plan, which is down roughly 45% versus 2023 as our hybrid manufacturing investment cycle tapers. Not included in these figures are the anticipated benefits from both the European and U.S. CHIPS Act. During the last 12 months, we generated $2.9 billion of free cash flow or 30% of revenue. Over this same time period, we have returned $2.8 billion via dividends and share repurchases. As a reminder, our strategy is to return 100% of our free cash flow to our shareholders over the long term. Now I'll turn to the fourth quarter outlook. Revenue is expected to be $2.4 billion plus or minus $100 million, up 4% sequentially at the midpoint. We expect sell through to be roughly equal to sell in this quarter. At the midpoint on a sequential basis, we expect industrial and consumer to increase, communications to be flattish and automotive to decrease. Operating margin is expected to be 41% plus or minus 100 basis points. Our tax rate is expected to be between 11% and 13% and based on these inputs, EPS is expected to be $1.63 plus or minus $0.10. In closing, our third quarter results and fourth quarter outlook support our view that we have passed this cycle's trough. However, challenging economic and geopolitical conditions are limiting a faster demand recovery. I will now give it back to Mike for Q&A. Michael Lucarelli : Thanks, Rich. Let's get to our Q&A session. We ask that you limit yourself to one question in order to allow for additional participants on the call this morning. If you have a follow -up question, please requeue and we'll take your question if time allows. With that, we have our first question, please. Operator: [Operator Instructions] Our first question comes from Tore Svanberg with Stifel. Tore Svanberg: Yes, thank you so much. Great to see the turn here. Vince, could you maybe elaborate a little bit more on this sort of mixed environment, right? Because inventories have bottomed, access to inventories have bottom, at the same time end demand seems to be kind of mixed. So, as you navigate through this period, could you elaborate a little bit on your visibility, how's backlog trending? Are you finally starting to see new products ramping more into production? Because these are typical signals that you want to see at the beginning of a new cycle. Vincent Roche: Yes, thanks, Tore. Well, I'd say first and foremost, we run this company on POS signals. That's how we plan our production, how we run the company operationally. So, we pay very, very close attention to what's happening in terms of the end market demand. And my confidence has increased since last quarter that indeed 2Q was the cyclical bottom. We've exited 3Q with very, very lean channel inventory. We've taken inventory of our own balance sheet though. We're positioned with a very, very healthy backlog of inventory on our own balance sheet so that the anticipated demand upsurge as we expect in 2025 were very, very well equipped and ready to meet that. So foray in the fourth quarter, as we've said, we expect to see continued sequential growth. And indeed, we'll also see, I think, particularly in the industrial area, continued improvement on customer inventory levels. So, look, it's all the whole recovery, the ramp of the recovery will depend on the macro situation. But nonetheless, given the design wins, we've a record design win pipeline in the company. So we're facing many, many secular tailwinds with a very strong pipeline, a very, very good supply line, and with a very, very lean inventory on the customer's balance sheet. So that gives me the optimism, Tore, that we're very, very well positioned coming into the new year. Operator: Our next question comes from Joseph Moore with Morgan Stanley. Joseph Moore: Yes, thank you. My question is on the trajectory of automotive versus industrial. It seems like automotive entered into an inventory correction a little bit later, and so far, has been much less severe. I guess you sort of talked about some ongoing headwinds in that space. Can you just talk about what overall drawdown might you expect in automotive and where are we in customers kind of growing down safety stock inventory Richard Puccio : So, Joe, this is Rich, and I'll take a crack at that one. So, I'll just level set a little bit from our perspective. And what we're seeing in the market cars continue to become more electric and software-defined, which is also driving our semi-content growth, largely trying to address increased battery densities, more sensors displays. And we do expect that is going to be a long-term tailwind to our business. However, and this is where we're starting to see some of the pullback. The vehicle market has softened in the near-term. We're seeing our customers pull back on their production. And at this point, we're seeing them start to choose to burn off some inventory. So we are seeing that, right? The softness is evidence in our results. Auto has been down year-over-year for two straight quarters and we expect it will be down again in 4Q. And from a bookings perspective, we did see a decline in bookings in auto. In particular, we've seen inventory digestion in our legacy auto and in our BMS portfolios. And we expect that's going to continue into at least the fourth quarter, particularly when you consider the challenging purchasing environment that currently exists for customers. However, to your question around the peak to trough unless our returns to pandemic levels, we don't see the peak to trough being nearly as dramatic as we saw in our other end markets. The underlying secular growth trends that I described driving higher semi content. Also, we've continued to see more penetration and value capture across all vehicle types, whether it's ICE, plug-in hybrid of electric or full electric in the fastest growing applications. If you think about that, ADAS, digital cockpit and electrification. So we will be down, but we don't expect that the cycle depth to be as severe as we saw, for example, in industrial. Joseph Moore: Great, thank you very much. And I guess as a follow-up, are you seeing that behavior any different regionally? Is the China automotive market different than the western markets in terms of where they are? Vincent Roche: No, I'll say overall, it's pretty unanimous across all markets. I'd say China, all of us did okay. We talked about some design and branding there, so that's helping offset some of the softness. But it's an overall comment, auto is a bit weaker today than it was 90 days ago, whether it's North America, Europe or Asia. Operator: Our next question comes from Vivek Arya with Bank of America Securities. Vivek Arya: Thanks for taking my question. Vince, glad to hear about your optimism about turning the cyclical corner. Do you think the environment allows for sequential growth to continue into Q1? Seems like industrial could grow, autos, I'm not sure, given some of the bookings commentary. And consumer tends to be down seasonally. So just conceptually, how should we model the shape of this recovery into Q1? Thank you. Vincent Roche: Yes, well, at this point it's hard to call, given that the environment is still a little, let's say, a bit of disequilibrium, but I think generally speaking, we would probably expect to see a bit of a seasonal decline in the first quarter, and then a bounce back in the second, and I think that's the sentiment, but overall I maintain my outlook that we will see a brisk growth year in ‘25. Richard Puccio : And then I'll help you out a little bit on the seasonality question. It's been a few years now since we've seen seasonal trends in our business. You're right. If you look back over the past 10, 15 years for ADI, consumers down 10%-plus sequentially in 1Q, and the BV markets of industrial, auto, and comms are down low single digits, as Vince said, there's probably no belief today that we'd be any better than seasonal given where we are today, but we'll update you in 90 days of how we feel about 1Q. Vincent Roche: Yes. I think the big modulator for us will be what happens in industry in particular, and what I can tell you is that the various C-suite conversations I've had with our industrial customers would suggest that their optimism is also strong for ‘25. Operator: Our next question comes from Timothy Arcuri with UBS. Timothy Arcuri: Thanks a lot. I just wanted to ask on that answer. So you were above seasonal in fiscal Q3 or above seasonal in fiscal Q4. Sounds like you're not willing to commit that you're going to be above seasonal in fiscal Q1. The street's modeling like 5% or 6% above seasonal for fiscal Q1. Was there something that happened in bookings? Did bookings like slow in the last couple of weeks or the last month or something to make you not want to commit to the fact that fiscal Q1 would be above seasonal or just that it's 90 days away and you just don't want to comment on it? Thanks. Vincent Roche: I'll start out on the street expectations and then Rich talk a little about bookings. We never guided 1Q. I think the street makes up -- the street expectation for 1Q. I think the street is of everyone better than seasonal for a calendar 4Q or a fiscal 1Q. I would hope of a snapback. I would say, yes, there are things that have changed in 90 days, but we're optimistic about ‘25 and full year. We just don't know if it's above seasonal in that outlook for a good year in ‘25. I'll pass it to Rich to go through some of the bookings dynamics. Richard Puccio : Yes, so from a bookings perspective up until Q2, as we talked about, we'd seen three straight quarters of broad-based bookings improvement. However, Q3 was different. We saw continued bookings growth for industrial, consumer, and communications, but we did see automotive orders decline, which resulted in a modest drop in our total bookings during the quarter. We did still end with a book to bill around parity. If I look at it from a geographic perspective, regionally bookings were the weakest in Europe. Americas was modestly weaker, which offset bookings growth in Asia. Operator: Our next question comes from Toshiya Hari from Goldman Sachs. Toshiya Hari: Hey, good morning. Thanks for taking the question. It was good to see inventory on your balance sheet come down again, and you guys spoke to channel inventory coming down as well. As you look forward, what are your thoughts on utilization rates internally? How are you engaging with your foundry partners, and what's embedded in your October quarter outlook as it pertains to the channel? Thank you. Richard Puccio : So, as I noted in the last call, we said both utilization and, in fact, gross margins had bottomed in Q2, and that is proving to be true. From an inventory in the channel perspective, the expectation is we will ship to end demand. We are currently at the very low end of our range in the channel at seven to eight weeks. And I think we've mentioned previously if we saw continued improvements, we would start shipping to end demand. So we will do that in the fourth quarter. Toshiya Hari: Thank you. Vincent Roche: Obviously, when it comes to the balance, we have a hybrid manufacturing system which enables us to keep utilization rates as high as possible internally, and when our factories run out of capacity, then we have lots of choices externally for silicon capacity. So obviously, we've got a lot of inventory on the balance sheet, and our factories are well capable of improving utilization rates as the demand continues to improve over the coming quarters. Toshiya Hari: As a quick follow-up, I think your internal utilization rates last quarter were in the mid-50s, if I'm not mistaken. Are you at or above 60% at this point, or if you can comment on that. Richard Puccio : We have to be -- given our look at the utilization towards as we give the rate, I would say there were lower last score to move in higher here in 3Q and 4Q, and there were well off the normal level, they're all called 85% to 90% utilization. Toshiya Hari: Got it, thank you. Richard Puccio : And then I'll give you some context -- I'll give you some little context. What does this mean as utilization ramp? What does that mean for gross margins? If you look at the decline of gross margins over the past year or so, about half the decline relates to utilization, the other half relates to mix. So you can see as you listen, pick up what that means for gross margin expansion. Operator: Our next question comes from Stacy Rasgon with Bernstein Research Stacy Rasgon: Hi, guys. Thanks for taking my question. I was hoping you could give us a little more granularity on the segment guide for next quarter. And then you said industrial, and I think consumer up and auto down. Any more for the color, like is consumer usually up, is it up double digits, is industrial up mid-single, auto down by low single, like any further color you could give us on the segments would be helpful. Vincent Roche: Sure, Stacy, I'll grab that one. Yes, so let's start with consumer. You're right, consumer's up about double digits, about 10% or so embedded in our outlook. Industrial's had another also solid growth quarter, probably high single digits sequentially. We had cases about flattish plus minus, depending on kind of how things go here, and although the weak market as we discussed and hit a little bit earlier on the call, probably down low single digits sequentially. Stacy Rasgon: Got it. That's helpful. If I could have a quick follow up, just how are you thinking about OpEx growth in the next quarter? It was pretty well under control this quarter. Is there anything that drives that up? Like what do you think about the OpEx trends as we're going to the end of the year? Richard Puccio : So Stacy, I'll take that one. So obviously we exceeded the high end of our outlook in the third quarter, given the beat on gross margin and revenue as well as our continued cost management. Our Q4 guide obviously does imply a modest margin contraction sequentially despite our expectation for higher revenue and gross margin. The main driver of that is our increase for merit increases that will go into effect during the fourth quarter. So that will be a downward pressure as we head into the fourth quarter. Vincent Roche: I mean, the big margin on our OpEx, Stacey, is obviously the bonus. And that obviously with declining profit and revenue over the past several quarters, that dropped accordingly. Now, with increase, with growth in revenue and improvement in profitability that will obviously increase. But that's self-funding, so to speak. Stacy Rasgon: Got it. How much do the OpEx go up then? Vincent Roche: For our fourth quarter outlook, I’d say sequentially increase in our OpEx around 5%. Operator: Our next question comes from Christ Danley with Citigroup. Christopher Danley: Thanks guys. First, just a little clarification on inventory in the auto market. Vince, I said it, I think at the beginning you talked about inventory is very lean out there, but then you're also saying that there's inventory digestion going on in the automotive market. Can you just expand on that a little bit? Richard Puccio : Dan, I'll grab that, and then Vince, talk about the overall customer inventory. Yes, I think every market spawned in different cases of inventory digestion. We feel good about industrial consumer comms have really normalized inventory levels. There are pockets on the auto side that's still, I'll call it digesting. I mean, production levels have been cut over the past quarter, whether it's an ICE car or an EV car. That impact inventory levels and desire to hold inventory on their balance sheets. From that standpoint, Chris, I don't know, Vince, if you have anything to add. Vincent Roche: I think, Chris, overall, we've seen the worst is behind us, I think, in the industrial consumer and comms market. But automotive, I think, is a sector where we will see some inventory digestion issues into at least the early part of 2025. Christopher Danley: Great. Thanks. That's helpful. And then just a quick clarification on industrial. How would you characterize your, I guess, booking/ visibility on the industrial market now versus three months ago? Is it roughly the same, or has it improved a little bit? Richard Puccio : Hey, Chris, it's Rich. I would say visibility is pretty consistent. And as we talked about, we're seeing continuing growth sequentially across all of the sub-elements of industrial with the exception of automation, which we are seeing improvements, but not yet seeing growth. Operator: Our next question comes from Harlan Sur with JPMorgan. Harlan Sur : Good morning. Thanks for taking my question. So for fiscal ‘23, China domestic consumption, I think was about 18% of their total revenues, it was the worst performing geography. Last couple of quarters where bookings in China have been growing sequentially. Did that translate into sequential revenue growth out of the region in the July quarter? And then it looks like orders from the China region grew sequentially in July. How are they trending so far quarter-to-date? Are you still seeing sort of positive signs out of this region? Vincent Roche: Yes, we continue to see strong performance from a bookings perspective in China. We did see double digit growth across industrial, auto and comms being slightly offset by a decrease in consumer. So China does continue to perform well. And our design win and our pipeline there are very strong. Operator: Our next question comes from Joshua Butler with TD Cowen. Joshua Butler: Hey, guys, thanks for taking my question. Maybe you can walk through some of the puts and takes into gross margin into the October quarter. Back the envelope, I'm getting to roughly stable sequentially despite the revenue increase and I imagine utilization is improving as well. How much of that is mixed? And in particular, is there any changes in the pricing environment as we get sort of through this digestion into what I would imagine is a more competitive environment. Thank you. Richard Puccio : Yes. I'd say it's, as we previously mentioned, it is significantly impacted by the favorable mix. Obviously, we get a benefit out of the revenue upside. From a pricing perspective, and I've talked about this before, we continue to see pretty stable pricing, and I do expect that to continue. Obviously, it's different by geography and for big and small customers, but on balance, we are continuing to see stable pricing, and I expect we will see that going forward. Vincent Roche: Once our products are installed in a particular customer's design, they tend to, in the industrial business, they will stay for decades, and pricing is very, very stable there. Where the pricing, or the competitiveness, is for new sockets, new wins, but nothing is new there. Now, we as a company -- we play in the high end of the game in terms of innovation, service, support, and so on and so forth. So that's the game we play. In the game we will continue to play. We significantly higher ASPs than most. And those ASPs increase with each new generation of product. So I think overall, as Rich said, the pricing environment is stable. And so I don't see that as a headwind on margin. Michael Lucarelli: Thanks, Josh. I think that's all the time we have for questions today. I thought we had a little more time, but it's August. You guys can go out there and enjoy the weather a bit. So thanks for joining us, all. We look forward to future calls with you guys, and have a great rest of summer. Vincent Roche: Thank you. Operator: This concludes today's Analog Devices Conference call. You may now disconnect.

Operator: Good morning, and welcome to the Analog Devices' Second Quarter Fiscal Year 2024 Earnings Conference Call, which is being audio webcast via telephone and over the web. I'd like to now introduce your host for today's call Mr. Michael Lucarelli, Vice President of Investor Relations and FP&A. Sir, the floor is yours. Michael Lucarelli: Thank you, Judy. And good morning, everybody. Thanks for joining our second quarter fiscal 2024 conference call. With me on the call today, ADI's CEO and Chair, Vincent Roche; and ADI’s CFO, Richard Puccio. For anyone who missed the release, you can find it in relating financial schedules and investor.analog.com. Onto the disclosures, information we're about to discuss includes forward-looking statements which are subject to certain risks and uncertainties as further described in our earnings release and our periodic reports and other materials follow the SEC. Actual results could differ materially from the forward-looking information, as these statements reflect our expectations only as a date of this call. We undertake no obligation to update the statements except as required by law. Revenue, adjusted gross margin, operating and non-operating expenses, operating margin, tax rate, EPS and free cash flow in our comment today will be on non-GAAP basis, which excludes special items. When comparing our results to historic performance. Special items are also excluded from prior periods. Reconciliation of these non-GAAP measures to most directly comparable GAAP measures and additional information about our non-GAAP measures are included in today's release. And with that, I'll turn it over to ADI's CEO and Chair, Vince? Vincent Roche: Thank you very much, Mike. Good morning, and a big welcome to you all. In the second quarter, a strong focus execution resulted in revenue of $2.16 billion, with profitability and earnings per share finishing above the high-end of our outlook. With 2Q now behind us, we believe, we've passed the low point of this cycle. Notably, global manufacturing PMIs, which are highly correlated with our core business are improving, customer inventories are stabilizing and our bookings have improved for a third consecutive quarter. Our growing optimism remains guarded, however, as short-term economic and geopolitical uncertainty persists. As such, we will continue to manage the near-term with great discipline, as we fund and execute against our longer-term strategic priorities to drive increasing levels of value for all of our stakeholders. With that framing, I'd like to share some examples with you of how we are continuing to strengthen ADI's high performance franchise across all markets and creating unique growth drivers that will be additive to what we hope will be a strong cyclical recovery. For example, in healthcare, we have exciting wins in areas such as the rapidly expanding surgical robotics market, where the performance of our precision signal processing and connectivity solutions is critical. In the fast growing, continuous glucose monitoring space, we've won multiple opportunities across several customers. Our unique digitally enabled analog front end solutions increase the accuracy and power efficiency of sensors and extend battery life from days to weeks. In industrial automation, the growth of the digital factory is accelerating upgrades to higher bandwidth, deterministic industrial Ethernet that can support up to 10x the number of edge devices across the factory floor. We believe our leadership position with key customers will create a durable revenue stream, beginning next year that can grow to several hundreds of millions of dollars as deployments ramp over time. Turning to automotive. Our solid performance is being driven by the proliferation of higher content vehicles that use more power management, more connectivity and an increasing number of sensor platforms that open new signal processing opportunities for ADI. The increasing content per vehicle is a pervasive trend across all vehicle types’ combustion engines, hybrids and full EVs. For example, in advanced safety, we've increased our GMSL design wins from 12 to 15 of the top 20 OEMs, and expanded our engagements at two European and one Korean OEM, who intend to deploy our high performance, high bandwidth connectivity solution across a larger share of their fleets. We've also seen strong attach for functionally safe power, which is used with sensors and displays in ADAS systems and recently increased share at the leading global car manufacturer. In electrification, we've expanded our battery management system share at leading Chinese OEMs and more than doubled our BMS share in upcoming European OEM model launches, and two manufacturers intend to deploy our higher content wireless solutions starting next year. Now I'd like to use the rest of my prepared comments today to share our perspective on the role that artificial intelligence is playing and will play at ADI in the future. This technology has clearly reached a tipping point and our AI opportunity spans from sensor to cloud. While we've been adding algorithmic and software intelligence to our products now for decades, we've expanded the scope and pace of our investments in recent years. Today, we are increasingly leveraging AI in and around our products, as well as in our operations to more fully meet our customers' needs and extend our industry leadership. We're deploying AI internally to help to accelerate engineering development, enhance manufacturing efficiency and create a better customer experience. But the majority of our activities are centered around product portfolio innovations that position us to take advantage of AI's enormous potential. We see this business opportunity coming in two distinct waves. The first wave focused on infrastructure is now underway and as we all know is growing very rapidly. In order to tackle the intensified energy and processing demands of AI compute systems, data center customers are investing in new vertical power architectures. As we highlighted previously, our vertical power technology, which can reduce power losses by up to 35% compared to existing architectures is gaining traction with hyperscalers. We continue to leverage our heterogeneous integration expertise to create more efficient, smaller vertical power solutions that deliver more value and enable us to capture more share in this nascent space. Power efficient computing though is just one challenge the AI ecosystem faces. Data must also be transported efficiently, securely and at much, much greater speeds. This is driving wireline customers to upgrade connectivity infrastructure, sparking a transition to 800 gigabit and 1.6 terabit optical modules. At the electro optical interface, our ability to provide high performance solutions that integrate analog, digital and memory in a reduced form factor is indeed a key differentiator. Our high precision controller was recently designed into a 1.6 terabit optical module used in the next gen AI systems of the high performance compute leader. In industrial, AI is fueling extraordinary demand for high bandwidth memory and high performance compute. This in turn is driving a new growth vector for our instrumentation and test business, particularly in SoC and memory test. We are working with key players globally to enable faster digital scan speeds, higher channel density and the improved energy efficiency necessary to scale production of AI systems. The significantly greater amount of ADI content in these systems is positioning our high performance compute and memory test sectors for record revenues in the near to mid-term. The opportunity ahead for ADI is to compound the impact of this first wave by bringing application-specific AI models and high performance compute right down to the physical edge, creating greater system value with added improvements in latency, power efficiency, security and cost. Let me share some examples of how we are working to amplify the second wave. For example, in acoustic systems, we are combining our application specific algorithms with ultra-low energy processing hardware to enrich our audio platform offerings. We are also developing a mixed signal processor with embedded neural networks that enable a system to learn and adapt to the highly variable nature of sound in real time. Excitingly, we have strong traction with multiple customers in this area. Now in the same vein, we're leveraging our rich domain expertise with our growing processing capabilities to enhance our advanced connectivity platform in next generation 5G radios. For example, we've implemented the first AI enabled technology, combining an energy efficient real time neural network with an AI assisted development tool to give customers the ability to solve their linearization challenges in a fraction of the time. In our power management platform, we're using AI to address the arduous challenge of tuning power trees for volatile consumption patterns in data centers. Our solutions reduce complexity for power engineers and compress the time required from weeks to hours, helping to lower costs, and of course, accelerate time to market. The ADI is always operated at the physical edge, where the world's most important real data is born. As multimodal AI becomes more pervasive at the edge and a diversity of sensor types is used to unearth deeper insights, we expect to see an explosion of demand that will accelerate growth for our broad signal chain, as well as power portfolios. In short, ADI's AI future looks bright across the continuum of sensor to cloud. In closing, I'm very proud of how our team has executed in one of the largest downturns the semiconductor industry has seen. More importantly, I've never been more excited about how we are positioned for the future and what it holds for ADI. With that, I'm going to hand it over to Rich. Richard Puccio: Thank you, Vince. Let me add my welcome to our second quarter earnings call. As a reminder, our first quarter 2024 was a 14 week quarter, so we are going to limit our comparisons this quarter to year-over-year only. Second quarter revenue of $2.16 billion finished above the midpoint of our outlook. This result was down 34% year-over-year. Industrial represented 47% of revenue in the quarter and was down 44% year-over-year. As expected, all applications were impacted by inventory digestion. However, aerospace and defense revenues outperformed broader industrial. Automotive represented 30% of revenue and was down 10% year-over-year. Continued growth in our leading connectivity and functionally safe power franchises balanced broad-based declines elsewhere. Communications represented 11% of revenue and was down 45% year-over-year. Inventory digestion and weaker demand impacted both our wireline and wireless businesses. Lastly, consumer represented 11% of revenue and was down 9% year-over-year with growth in portables, partially offsetting declines across other applications. Now let's move from the top-line to the rest of the P&L. Second quarter gross margin was 66.7%, down sequentially and year-over-year, driven by unfavorable mix, lower revenue and lower utilization as we continue to reduce inventory. Operating expenses in the quarter were $598 million, down significantly year-over-year, driven by lower variable compensation and strong organization wide execution on cost control. Operating margin of 39% exceeded the high end of our outlook. Non-operating expenses finished at $64 million and the tax rate for the quarter was 10.6%. The net result was EPS of $1.40 above the high end of our outlook. Our financial position is solid, and I'd like to call out a few items from our balance sheet and cash flow statement. We ended Q2 with more than $2.3 billion of cash and short-term investments and a net leverage ratio of 1.1. During the quarter, we raised $1.1 billion of debt for general corporate purposes, including upcoming debt maturities. Inventory decreased $74 million sequentially, and days declined to 192 from 201. As planned, we have reduced channel inventory this quarter with weeks ending at approximately eight. Operating cash flow for the quarter and trailing 12 months was $0.8 billion and $4.3 billion respectively. CapEx for the quarter and trailing 12 months was $188 million and $1.2 billion respectively. We continue to expect fiscal '24 CapEx to be roughly $700 million, which is a reduction of approximately 45% versus 2023, as our hybrid manufacturing investment cycle tapers. Not included in these figures are the benefits from both the European and U.S. CHIPS acts. During the last 12 months, we generated $3.1 billion of free cash flow or 29% of revenue. Over the same time period, we have returned roughly 110% of our free cash flow via dividends and share repurchases. As a reminder, our policy is to return 100% of free cash flow to our shareholders over the long-term. Now I'll turn to the third quarter outlook. Revenue is expected to be $2.27 billion plus or minus $100 million, up 5% sequentially at the midpoint. Once again, we expect sell through to be higher than sell in. At the midpoint, we expect all B2B markets to increase sequentially with the fastest growth in industrial, and for consumer to exhibit seasonal strength. Operating margin is expected to be 40% plus or minus 100 basis points. Our tax rate is expected to be between 11% 13%, and based on these inputs, adjusted EPS is expected to be $1.50 plus or minus $0.10. Before passing it back to Mike to begin Q&A, I'll share some final thoughts on our near-term. As Vince indicated, we believe we are at the beginning of a cyclical recovery as our bookings increased throughout the quarter and we exited 2Q with a book-to-bill above parity for the first time in well over a year. No doubt cyclical transitions can be challenging, but they also provide opportunity for outsized business acceleration when approached with a balance of fiscal discipline, smart risk taking and strong execution. ADI has always excelled in these areas and we look forward to driving outstanding value for our stakeholders in the quarters to come. With that, I'll pass it back to Mike for Q&A. Michael Lucarelli: Thanks, Rich. Let's get to the Q&A session. We ask that you limit yourself to 1 question in order to allow for additional participants on the call this morning. If you have a follow-up question, please re-queue and we'll take your question if time allows. With that, we will have our first question please. Operator: [Operator Instructions] Our first question comes from the line of Tore Svanberg from Stifel. Tore Svanberg: Yes. Thank you and congratulations on finding the recovery here. I had a question about the outlook for Q3, specifically in Industrial. I think you indicated that, you expect Industrial to be the strongest performer this quarter. I was hoping you could talk a little bit about what's behind that strength between end market demands, inventory replenishment and if there's any sub-segments within industrial that's driving that outperforming growth? Richard Puccio: Sure, Tore. This is Rich, and I'll take that one. Industrial obviously is our most diversified and profitable end market, and it's weathered an unprecedented broad-based inventory correction over the past year. Importantly, we expect Q2 was the bottom for industrial and it will grow in the second half starting here in 3Q. Stronger PMIs are supporting the broad-based bookings we've seen for the three consecutive quarters now. As mentioned in the prepared remarks, we are planning to reduce channel inventory further in Q3, which impacts industrial more than any other market. This will be more than a year of under shipping consumptions, one reason we believe inventory headwinds have stabilized for industrial. Given these dynamics and the exciting design wins and AI related tailwinds in our instrumentation and test business, which Vince alluded to, we feel strongly we are at the beginning of the industrial recovery. Vincent Roche: Yes. I think one other piece of color, Tore, is that, the obviously, the aerospace and defense business is doing well. We've a lot of high prospects for that over the coming years. But I think, in general, geographically, it's been on the upward in terms of demand and across most of the segments, and particularly the ones that Rich pointed out. Michael Lucarelli: Tore, on the outlook comment, you're right. Just to clarify what we said, of the B2B markets, industrial grow the fastest, consumer will grow faster than industrial in 3Q. If you want to just kind of back it down a little bit, consumer is probably growing about 10% sequentially and industrial is probably closer to mid-single-digits and the other two markets are probably a little bit below that industrial level, but all markets should grow in 3Q. Operator: Our next question comes from the line of Stacy Rasgon from Bernstein Research. Stacy Rasgon: Hi, guys. Thanks for taking my question. I wanted to ask about the book-to-bill. It's above one. Is it above one in all the segments, or is it just above one in industrial? Michael Lucarelli: Yes, sure. It's actually good question. It's above one in all end markets. Not all applications within end markets are above one though. And if you think about the shape of that bookings throughout the quarter, we talked about last earnings call, bookings improved. It started below parity and exit the quarter above parity and that's across all markets and geographies. But again, I reiterate, it's not all applications and we talked a little bit about on the last question about what applications are above one. You can think of some instrumentation, some automation, some aerospace and defense within industrial. Broad-based improvement in bookings across all market geographies is really the main takeaway. Operator: Our next question comes from the line of Toshiya Hari from Goldman Sachs. Toshiya Hari: Hi. Good morning. Thank you so much for taking the question. I wanted to ask about the back half of the calendar year and how you're thinking about the shape of the recovery. Vince, you've lived through many cycles. I think typically the same way we underestimate the magnitude of the pace of the downturn, we collectively underestimate the pace of the upturn. I'm curious if you expect this upturn to be similar to past cycles and we kind of follow those patterns or do you see anything in the marketplace today or anything from customers that would indicate something materially different in terms of the shape of the upturn? Thank you. Vincent Roche: Thanks, Toshiya. Look, first off, we believe we've seen the bottom of the cycle. As Mike indicated, the stronger PMIs that we've seen, particularly in the industrial sector, give us a lot of confidence, and there's a strong correlation between our industrial business, which is about half of the company's total revenue. As we've said now a few times, bookings and backlog coverage for the next several months beyond this quarter would give us strong indications that we expect continued growth during the second half of the year. I'll also point out, I think for 2025, we will have a brisk growth year, that's my sense. We are asked all the time, what's the shape going to be? I don't really know what the exact shape is going to be, but I think we're on the upward trajectory. We have confidence in that across the board. Operator: Our next question comes from the line of Vivek Arya from Bank of America Securities. Vivek Arya: Thanks for taking my question. Vince, what is the right way to understand the true change in end demand, if we set aside all the inventory fluctuations? For example, is it worthwhile seeing what the distribution sell through do year-on-year in Q2? What is the assumption for Q3? Does that inform us in any way about can Q4 be seasonal, whatever is the version of seasonality? I'm just trying to see, the right apples-to-apples way of looking at what is end demand doing, setting aside all this inventory noise. Vincent Roche: Yes. Look, I think it's very hard to answer that question, simply because when history is written, we're going to get the average of what's happened pre-pandemic and post-pandemic. There's been so much ringing in the system, demand overshoot and then demand undershoot. But my sense is, certainly from our perspective, I think we are very well-positioned to be able to capture the upside if things grow faster than we expect. We have got a lot of inventory on the balance sheet. We've kept inventory closer to ADI less downstream. We've got as well a tailwind here from AI, which I think is going to be a multi-year tailwind. We have got that pushing us along. But at the same time, still we've got high interest rates, we've got still relatively high inflation in many places. I think ultimately the size of the recovery and the pace of the recovery will have a strong economic and geopolitical tone to it. But, overall, my sense is, we'll see good growth for the remainder of this year and strong growth in 2025. Beyond that, I think we've got many, many growth drivers that we feel very confident about. We're selling more value into each of our customers and each of our segments. I feel good about the place that semis are in as an industry right now as well in terms of overall demand, as the edge becomes more intelligent and the cloud builds out. But very, very hard to give you an answer on the puts and takes. I mean, the dynamics of the relatively near-term are hard to decode. But what we can tell you is, given where PMIs are at, given where our demand is at, we are in a recovery phase. Richard Puccio: Vince, I would add to that. While it's impossible to get perfect visibility into our end customer inventory, certainly the signals that we monitor tell us that, customer inventories are much healthier than they were previously as we enter the second half. This is also aided by our belief that, we have been under shipping under consumption for over a year now both in the channel and direct. Vivek Arya: But that's Quantification, right, of what the sell through has been in the reported quarters year-on-year? Vincent Roche: Yes. I can help you out there, Vivek. I think your question is kind of what sell in versus sell through. We talked about last year. We talked about reducing the channel inventory by about $100 million. We achieved that in our 2Q. We actually did a little better than that. As you look to 3Q, we'll reduce channel dollars again, but not by that much, not nearly $100 million, much less than $100 million. So, we're getting more normal in the channel as our weeks are coming down into our target range. That normalization is helping some of the growth, but sell through is also increasing in 3Q from 2Q, which is really how we drive the business and look at for indication. As you fast forward to 4Q, if these bookings continue, we don't know. There's no reason to think we won't be more in balance in 4Q from a ship in versus ship out perspective as well, and then we'll see how 1Q goes from there. I think that's kind of the question you're asking is, there's piece Rich talked about and Vince talked about the customer's inventory that's leading out. If you look at us and what we're shipping in the channel that's also normalizing setting us up for a good second half in 2025. Operator: Our next question comes from the line of Christopher Danley from Citigroup. Christopher Danley: Can you talk about the gross margin drivers from here? Maybe touch on utilization rates and inventory trends and some of your competitors have talked about pricing returning to historical norms. If that happens, can you still get the gross margins back to the previous peak? Richard Puccio: Sure. I'll take that one. From a gross margin and utilization perspective, we talked a little bit about this in the first quarter call. We expect both utilization and gross margin bottomed in our Q2. However, we do expect the pace of gross margin expansion in the second half to be modest. Specifically for Q3, we anticipate gross margin a bit above 67%. Looking from here, gross margins expansion is going to be dictated by continued revenue growth, mix of business and utilization. From a balance sheet perspective, since our peak in Q3, we've reduced balance sheet inventory significantly, including over $70 million in Q2. For the third quarter, we expect to reduce inventory again by a lesser amount than in Q2. Overall, we executed pretty strongly against our inventory reduction goals, while mitigating the impact on gross margin, leveraging our dynamic hybrid manufacturing model. One of the things that's been super helpful in protecting us in this trough is the flexibility to swing capacity back into our fabs to help to maintain utilization. We've done that effectively, which is why we called the floor on utilization. I expect that utilizations as the demand continues to increase will start to increase and aid in our margin expansion. From a channel, as Mike mentioned, from a channel perspective, our goal was to reduce by $100 million we achieved. We will reduce an additional amount in Q3 to a lesser degree. Ultimately, we expect that this will get us firmly back into our target range of seven to eight weeks of inventory in the channel. Vincent Roche: Let me make a comment on the pricing side of things. Across the portfolio, our pricing has been very, very stable and I expect that to continue. Our products are very sticky. The franchise is very, very diversified. It's got lots of long life products in it. We tend to hang on to our sockets for, I think, on an average more than a decade. Clearly, where the competition is for the new sockets. But ADI has the premier innovation system in the analog mixed signal space and we have been pushing that innovation. While others are focused on volume, we're focused on value. I think it's a very, very different approach to things. We are not a commodity supplier at all. So we are not immune to price pressure, but we are more protected I think and we have better meat because of the innovation that we generate. I'll note as well, our ASPs are more than 4x the average. It's our innovation premium that enables us as well to capture more value and to produce the kind of gross margins that that we do. Operator: Our next question comes from the line of Ross Seymore from Deutsche Bank. Ross Seymore: Hi, guys. Congrats on marking the trough and turning the corner. Vince, I wanted to ask a bigger picture question. I think it's been four years since you guys bought Maxim and I believe it was four years prior to that with Linear. How are you looking at the M&A environment? Are there any kind of pieces to the puzzle that you wish you had? Vincent Roche: Thanks, Ross. We've always acquired assets that get ADI ahead of customers' needs. We tend to take a long-term view, get ahead of our customers' needs. Obviously, we've been very, very selective. I will say, Ross, it's fair to say that, in terms of scale and scope of analog high performance franchise, we are where we need to be. Analog mixed signal power, we've got a wonderful power franchise now. But we've been adding, I alluded in my remarks or stated in my prepared remarks that, we have been putting more software content, more digital content and we've also been for about seven or eight years now developing machine learning, neural networking capability. Those are areas where as the world becomes more and more software defined, that is clearly an area where ADI has been organically investing. We've done some more tuck-in type acquisitions as well that help us in that area. But I think right now, we are really focused on making sure that, we fully capture all the synergies, from the revenue synergies from Maxim. But we're always looking, by the way. We're always looking for assets. But clearly I think analog is complete and it's other areas we're now looking. Operator: Our next question comes from the line of Mark Lipacis from Evercore ISI. Mark Lipacis: Hi, thanks for taking my question. Vince, it's for you, I think. If you look at your -- if you adjust your revenues for the step function increase that you had for pricing, it looks like on a unit basis, you're shipping 25% below the trend line. I don't think you shipped that far below your long-term trend line since the world financial crisis. At the same time that's happening, you talked about your customers lowering, the supply chain lowering inventories, you are lowering inventories. It seems like there's a real risk that the industry is setting up for you and the industry is setting up for like a really tight supply environment, maybe even as they're early as the end of this year or early next year. I'm wondering, how do you think is there a risk that we enter that kind of a scenario? It seems like your customers never learn about trying to get their inventories right and the order see you on time. Is there something that's changed in your operations that will enable you to adjust to that, what has historically happened, which is your customers overshoot on the downside on their inventories and then come in at the last second when things are really tight? Vincent Roche: Yes. Well, yes, I think surging demand is a problem of a high quality. And as -- we have virtually 200 days of inventory in our balance sheet, stage primarily at the die socket level. So that gives us a tremendous amount of output that we could bring within weeks to the market. It's a question of packaging and test to a first approximation. Obviously, we're carrying finished goods as well. We have also spent $2.5 billion plus on making sure that we have internal capacity in our 4 internal fabs to be able to meet the demands across the nodes that produce most of the revenue for ADI. We've got great partners, partners like TSMC, for example, who are a critical part of our hybrid manufacturing model. So I think in terms of the ability to be able to address a really short order snapback is good, just given the coverage that we've got with internal inventories. Our distributors are carrying virtually 8 weeks as well as inventory. And then we've got all this new capacity. We've more than doubled the internal capacity on the critical nodes that address every single market that we that we participate in. So I think in terms of manufacturing agility, inventories, we're in good shape. Operator: Our next question comes from the line of Harlan Sur from JPMorgan. Harlan Sur: Great job on the quarterly execution. Within your distribution business, it's about 60% of your overall revenues. You can monitor sell-through in near real-time which allows the team to tightly control the inventories into this channel. On the direct business, less visibility on consumption levels of inventory here. I think direct customer orders to you are probably the best indicator of where they are in terms of their inventory targets. So is the return to quarter-on-quarter growth in July and second half optimism on growth being driven by order growth at direct customers as well? And then just any qualitative differences on the residual excess inventory distri versus direct? Michael Lucarelli: Yes, Harlan, it's Mike. Yes, the direct order we talked about our -- direct orders as well as channel orders, but what's driving the growth is direct sales, out of the channel on a sell-through basis as well imaged directly to our end customers. So yes, it's not about -- we're not growing because the channel is refilling. We're growing because there's real demand out there on the end market level across all of our markets. Richard Puccio: We expect to reduce both balance sheet and channel inventory further in Q3 while growing. Michael Lucarelli: Did that [indiscernible] to your question, Harlan? Harlan Sur: Yes, it does. Michael Lucarelli: We'll go to our last question, please. Operator: Our next question comes from the line of Joseph Moore from Morgan Stanley. Joseph Moore: Great. I wanted to also touch on your margin profile. You used to peak with operating margins in kind of the low 40s. And now you're -- as you said you would, in a very difficult trough, you're troughing for the full year, probably above 40%. So that's pretty good structural improvement. Can you talk about that, what's going on if you sort of look over a decade, why is your through-cycle margin profile going up so much? Richard Puccio: Yes. So I think a couple of things, right? As we talked about -- the resiliency of our manufacturing process allows us to swing capacity in and out which allows us to offset some of the down cycle pressure on margins because we're able to keep utilization at a higher level given that swing capacity. Obviously, we continue to look for productivity and are executing on productivity improvements across all of our internal fabs. So I think that helps. And then if you think at an overall operating margin perspective, we've been demonstrating and we'll continue to demonstrate pretty strong operational control over expenses. Look, we expect we'll continue to see expansion in the margin as we grow and as revenue returns to a growth phase, we will get comfortably back into our long-term margin model. Vincent Roche: Yes. I think, Joe, as well, in addition to what Rich has said, it's important to point out that, first and foremost, we're innovation-centered, and if you look at the vintage bands of our products in each of the segments, the big segments that we address, industrial, automotive, consumer and communications, we're seeing ASP increases year-on-year. We're putting more value into our products. We're capturing more value. So I think that is kind of the root of things when I look forward. That's -- I mean that's what's happening to -- that's the origin, if you like, of the margin story for ADI. Our diversity helps us a lot. Our franchise isn't as price-sensitive as many. And as I said earlier, the life cycles matter. When we get our products designed in the pricing is tremendously stable. The other thing that's been happening from a price dynamic over the last several years is that whereas Moore's Law kind of taught everybody that we could give back a lot of the value that was generated in prior years, in the New Year. That has stopped. We asymptote roughly to zero now. We don't give price away. We compete for sockets, computed innovation, but that is really the origin of ADI's margin story. Michael Lucarelli: All right. Thank you, Joe, and thanks, everyone, for joining us this morning. A copy of the transcript will be available on our website, and all reconciliations are there as well. Have a great Memorial Day weekend, and thank you for listening on ADI's call. Operator: This concludes today's Analog Devices conference call. You may now disconnect.

Operator: Good morning and welcome to the Analog Devices’ First Quarter Fiscal Year 2024 Earnings Conference Call, which is being audio webcast via telephone and over the web. I'd like to now introduce your host for today's call Mr. Michael Lucarelli, Vice President of Investor Relations and FP&A. Sir, the floor is yours. Michael Lucarelli : Thank you, Josh. And good morning, everybody. Thanks for joining our first quarter fiscal 2024 conference call. With me on the call today, are ADI’s CEO and Chair, Vincent Roche and ADI’s CFO, Richard Puccio. For anyone who missed the release, you can find it in relating financial schedules and investor.analog.com. Onto the disclosures, information we're about to discuss includes forward-looking statements which are subject to certain risks and uncertainties as further described in our earnings release, our periodic reports and other materials follow the SEC. Actual results could differ materially from the forward-looking information, as these statements reflect our expectations only as a date of this call. We undertake no obligation to update the statements except as required by law. Revenue, adjusted gross margin, operating and non-operating expenses, operating margin, tax rate, EPS and free cash flow in our comment today will be on non-GAAP basis, which excludes special items. When comparing our results to historic performance. Special items are also excluded from prior periods. Reconciliation of these non-GAAP measures to most directly comparable GAAP measures and additional information about our non-GAAP measures are included in today's earnings release. As a reminder, the first quarter of 2024 was a 14-week quarter. And with that, I'll turn it over to ADI's CEO and Chair, Vincent Roche, Vince? Vincent Roche : Thank you very much, Mike, and good morning to you all. But before I begin, I'd like to welcome ADI’s new CFO Richard Puccio to the call, which is only a few weeks in, but we're very excited to have him on board. He brings tremendous financial experience and capability from complex technology sectors, which I think will be very valuable, as we continue to extend our leadership in the Intelligent Edge era. I'd also like to recognize Jim Mollica for serving as Interim CFO and thank Jim for his continued partnership and contributions to our success. Now on to the results for the first quarter. ADI delivered revenue of more than $2.5 billion, operating margins of 42% and earnings per share of $1.73, all above the midpoint of our outlook. As we previously discussed, the inventory rationalization that our customers that began during the middle of 2023 is expected to continue through our second quarter. Encouragingly, first quarter bookings improved sequentially, growing our confidence that inventory related headwinds will largely subside this quarter. That said, the macro situation remains challenging, and the shape and timing of a second half recovery will be governed by underlying demand. Importantly, the strength of our balance sheet, operational agility, and prudent capital management are serving as well during this downturn. We've invested heavily in R&D, customer engagement, activity and manufacturing resiliency, fueling our future growth, even as we maintain the industry leading profitability that supports our practice of robust capital returns. To that end, I'm pleased to highlight that we announced the 7% dividend increase yesterday, making 2024 the 20th consecutive year of higher dividends for shareholders. Now, digging a little deeper into our investment philosophy, we continue to focus on anticipating our customers’ future needs. And what's becoming a software-defined AI-driven world leveraging pervasive sensing, Edge computing and ubiquitous connectivity. The technological complexity facing our customers is compounded by their need to deliver solutions that are both secure and extremely power efficient. So let me share a little more now about how we are strategically allocating our capital to deliver more solutions value to our customers, and further support their confidence in the long-term supply assurance? Since our acquisition of Maxim, we've increased our engineering population by around 10% complementing our world class Analog talent, with increasing levels of digital software, AI, and systems expertise. This breadth of engineering gives ADI the capabilities to tackle more of our customers' challenges, and grow our sell-in across markets. In addition, as our engineers increasingly work shoulder to shoulder with our customers to co-architect their solutions, we further deepen our understanding of their technological and market complexities. This strengthens our ability to deliver increasingly stronger innovation from components to physical Edge systems. And I'd like to share now a few examples of what I mean. For example, in the industrial sector, digital transformation is driving investment in Edge-based connectivity and control platforms that enable secure power efficient monitoring and control of automation systems. Last month, Honeywell announced it will use ADI's Deterministic Ethernet and software-configurable IO solutions across their factory automation and building management offerings. Our portfolio enables customers to securely deliver end-to-end signal integrity between the Edge and the cloud in a power efficient and highly flexible platform configuration. This system approach enables us to capture three times more value, and we expect additional design wins due to high customer interest globally. In the automotive sector, we've aligned our business to the second are trends of electrification, advanced safety systems, and immersive digital in-cabin experience. For example, our Gigabit Multimedia Serial Link or GMSL Solution continues to gain broader adoption, as customers seek to extend high performance data and video capabilities across their fleets. We’ve recently increased our share at a top three global auto manufacturer extending our position across all their brands and quintupling our GMSL opportunity at that customer. In datacenters, AI and machine learning computing systems require orders of magnitude more processing and thus energy, compared to traditional workloads. Our portfolio of high-performance power and protection solutions, specifically designed for vertical power delivery is helping customers re-architect their datacenter systems to improve power delivery and system performance. Last quarter, we secured a significant design win from a large hyperscale customer for our multiphase vertical power solution that reduces power losses by 35% when compared to conventional ones. In Healthcare, this market continues to digitalize to enable more predictive and preventative treatment regimens. ADI has been on the forefront of this transition, and I'm pleased to let you know that we've recently received FDA clearance for a non-invasive remote monitoring platform, that enables home-based management of chronic diseases such as congestive heart failure. This solution leverages our deep domain expertise, leading-edge capabilities across signal processing and sensor modalities, and unique algorithms that enable medical providers to act early, precisely and effectively. As a platform, this also allows us in the future to use our data-driven AI algorithms to make this even more personalized. This advance unlocks a new growth vector for ADI, adding more than $5 billion of new sell-in. Switching now to the evolution of our supply chain, I'd like to share some of our progress in manufacturing resilience, which is a growing priority for our customers. Over the last two years, we've invested record levels of CapEx to expand our capacity and to enhance resiliency. Now with line of sight to achieving our goal of doubling front and back-end internal capacity in 2025 and will begin to significantly reduce our capital spend. Notably, approximately 10% of our investments have been focused on implementing more efficient systems that will deliver sustainability benefits, including greatly reducing input resources and emissions, which, overtime, will also lower our operating costs. These investments enable a more flexible hybrid manufacturing model and will increase our swing capacity to around 70% of revenue in the coming years. This unique ability helps to capture the upside in strong demand backdrops and better protect our gross margins during more challenging times. Complementing these organic investments, we also extended our foundry partnership with TSMC to secure additional 300-millimeter fine-pitch technology capacity at their Japan subsidiary. Our investments, combined with the support of our foundry partners will enable us to manufacture our products in multiple geographic locations, enhancing our resiliency and giving our customers greater optionality and assurance over their supply chains. So in closing, as always, we're keeping one eye on the present and one eye on the future. I have confidence in the steps that we're taking to preserve our capital and navigate the near term challenges while ensuring that we make the necessary investments to increase our competitiveness and accelerate our business in the future. And so with that, I'd like to pass the microphone over to Rich. Richard Puccio : Thank you, Vince. And let me add my welcome to our first quarter earnings call. I'm excited to have joined ADI and look forward to helping the company navigate the near term while ensuring we are well positioned to capitalize on the tremendous opportunities ahead of us. Despite continued challenging business conditions, we achieved first quarter revenue, which was slightly above the midpoint of our outlook or down 8% sequentially and 23% year-over-year. Industrial represented 48% of revenue in the quarter, down 12% sequentially and 31% year-over-year. As expected, we experienced broad-based weakness as customers continue to work down their inventory levels. Automotive, which represented 29% of revenue, was up 2% sequentially and 9% versus the year ago period, representing 14 consecutive quarters of growth. Notably our leading connectivity and functionally safe power solutions collectively increased double digits year-over-year. Communications, which represented 12% of revenue, declined 10% sequentially and 37% year-over-year. On a sequential basis, wireline fared relatively well driven by AI-related demand, while wireless decreased as global investments in 5G remain depressed. And lastly, consumer represented 11% of revenue, down 7% sequentially and 22% year-over-year driven by continued sluggish end demand across applications. Now on to the rest of the P&L. First quarter gross margin was 69%, down sequentially and year-over-year, driven by unfavorable mix lower revenue and lower utilization. OpEx in the quarter was $679 million, down 2% sequentially despite the extra week, driven by lower variable comp, disciplined discretionary spend and structural cost improvement. As a result, operating margin of 42% finished near the high end of our outlook. Non-operating expenses finished at $75 million, and the tax rate for the quarter was 11.8%. All told, EPS was $1.73, slightly above the guided midpoint. Now on to the balance sheet. Cash and equivalents increased more than $340 million sequentially and ended the quarter at $1.3 billion. Our net leverage ratio remained below 1. Inventory decreased nearly $90 million sequentially, driven primarily by finished goods, while days increased to 201 due to lower revenue. Channel inventory dollars declined again in 1Q with weeks of inventory finishing slightly above our target range of seven to eight weeks. Moving on to cash flow items. Over the trailing 12 months, operating cash flow and CapEx were $4.6 billion and $1.3 billion, respectively. We continue to expect fiscal 2024 CapEx to be approximately $700 million. As a reminder, these are gross CapEx figures, not including any of the anticipated benefits from both the U.S. and European Chips Act. Over the last 12 months, we generated $3.2 billion of free cash flow or 28% of revenue. During the same time period, we have returned more than $4.2 billion through dividends and share repurchases. And since our Maxim acquisition, we have returned nearly $12 billion or more than 130% of free cash flow to shareholders, reducing share count by 8% while also increasing our dividend per share by 33%, including our most recently announced 7% increase. As a reminder, we target 100% free cash flow return over the long term. We aim to use 40% to 60% to grow our dividend annually with the remaining free cash flow used for share count reduction. Now moving on to guidance. Second quarter revenue is expected to be $2.1 billion, plus or minus $100 million, once again, we expect sell through to be higher than sell-in. At the midpoint, we expect all end markets to decline sequentially with the largest decline in industrial as we continue to meaningfully reduce channel inventory. Operating margin is expected to be 37%, plus or minus 100 basis points. This includes the impact of unfavorable mix and lower utilization as we further reduce balance sheet inventory. Our tax rate is expected to be 11% to 13%. And based on these inputs, EPS is expected to be $1.26 plus or minus $0.10. In closing, the actions we've taken to protect profitability in the near term as well as the natural shock absorbers embedded in ADI have enabled us to maintain strong profitability even as our quarterly revenue has fallen significantly from its peak. Importantly, with the strength of our financial profile and the growing importance of our technology, we will continue to invest confidently in our future, regardless of where we are in the cycle. I will now give it back to Mike for Q&A. Michael Lucarelli : Thanks, Rich, and welcome to the call. Let’s get into our Q&A session. We ask that you limit yourself to one question in order to allow for additional participants on the call this morning. If you have follow up question, please requeue, and we’ll take your question if time allows. With that, we have our first question, please. Operator: Thank you. [Operator Instructions] Our first question comes from Joseph Moore with Morgan Stanley. You may proceed. Joseph Moore : Great, thank you. You guys are guiding down now mid-30% year-on-year. If I go back to historic drawdowns, you haven't seen revenue fall that far other than 2001, 2009, where we had kind of significant demand destruction. So it kind of looks like the worst inventory correction maybe we've ever seen. Can you just talk to that? Does that reflect how much inventory excess there might have been? Or just any kind of sense check as we approach the bottom as to why the downturn looks kind of severe? Vincent Roche : Yeah. Thanks, Joe. I think first and foremost, the -- if you like, the events that caused the supply chain fracture was unique. And every single segment was impacted every single customer, every single business. So this is truly the broadest base demand inflection I've ever seen in my 30-something years with ADI. And I've been through all those different perturbations. So I think that's the uniqueness of the event itself, I think is what caused the level of impact. And we see everything compounded. We saw the supply chain fracture. Then we saw the shortage, and then we got the behavior that we typically see in a shortage situation. You get double ordering, you get holding. And we're seeing that everywhere. The area that we've probably seen, I would say, the biggest correction is in the industrial market. And I think our sense is that it began in the second -- kind of the second half of the past year. And that will take four to five quarters to correct, I believe, from the beginning of the decline to when we start to see growth again. So I think that's pretty much it. But now we're in a situation where the lead times are very uniform. And actually, we got ahead of the supply chain issues, I think, faster than most. We've got our lead times back into better shape than most quite quickly. And so we saw the downturn, I think, more quickly than others. So all that said, Joe, I think the underlying demand for our products and technologies in the years ahead. We remain very, very bullish about that. And I expect, as we've indicated that we'll see a return back to growth in the second half of our fiscal year. Michael Lucarelli : Thanks, Joe. Operator, next question please? Operator: Thank you. One moment for questions. Our next question comes from Stacy Rasgon with Bernstein Research. You may proceed. Stacy Rasgon : Hi, guys. Thanks for taking my questions. Rich, I was wondering if you could give us a little more color on the segment guidance next quarter. I know you said everything down in industrial worse. But I mean like industrial has got to be down probably more than 20% sequentially, and that would probably still assume everything else is down double digit sequentially. Is that what you have in mind? And any further color you could give us would be great. Michael Lucarelli : Yeah. I'll grab that one. It's Mike. So you're right to think industrial is the weakest. I would say, 20% sequentially, sure, you can put that number in your model if you want to, 20% plus or minus sequentially. I would say comms is also probably worse in the midpoint of your guidance, so down more than the 16% we guided to. While auto and consumer probably do a bit better, but are both down pretty significantly sequentially as well. And really, the big driver on the industrial piece, as we laid out is the channel reduction in the -- for the inventory in the channel, which is impacting industrial more so in other markets. I hope that helps, Stacy. Stacy Rasgon : Yeah. Michael Lucarelli : We’ll go to the next question. Operator: Thank you. One moment for questions. Our next question comes from Chris Danely with Citi. You may proceed. Chris Danely : Hey, thanks, guys. Just to follow up on that question. How much of this downturn do you think is just pure inventory correction versus demand? And then any comments you could you could have on just demand trends as far as what you're hearing from the distribution channel and your customers? Michael Lucarelli : Sure. I'll start and then I think Vince will add some clarity also on it, but this really is a supply-driven demand correction, what you're seeing here. And Vince outlined that in the answer to the first question where the supply chain fracture lead times extended for an extended period of time. Those have normalized. We're still seeing what are happening as our customers is, they build a lot of inventory over that time. Why our lead times are extremely long. Now our lead time is back to normal, so they're seeing them reduce their balance sheet inventory to match our short lead times, so the cycle times match up. So really also a majority supply chain some demand. There's some areas of pockets of weakness in demand. But really overall, I'll call it more of a supply than demand correction in our business. And we talked about in the script and as well the press release that supplied normalizing here in our second quarter. Vincent Roche : Yeah. I think, Chris, if we look at the two halves of FY24, I believe the first half is all about inventory in digestion and digestion. And as Mike said, we largely get through that part of the headwind by the end of our second quarter. And then in the second half, all the indications our bookings are getting stronger, cancellations are abating. Our conversations with customers suggest that we'll begin to return to a growth pattern in the second half. The big question is the macroeconomic dial where that's positioned. And I think at the margins, if I look at where we are this quarter versus last quarter, at least from a macro standpoint, maybe with the exception of China, we're more bullish than we were. Chris Danely : All right. Thanks, guys. Michael Lucarelli : Thanks, Chris. Operator: Thank you. One moment for questions. Our next question comes from Vivek Arya with Bank of America Securities. You may proceed. Vivek Arya : Thanks for taking my question. Vince, on the last earnings call, you mentioned bookings were stabilizing. I think this quarter, you're saying bookings are improving. And I'm curious which end markets are showing the best recovery in bookings? And then importantly, how should this inform us about what ADI will see as we get into the July quarter? Should we be assuming some kind of seasonal recovery, should we assume things flatten out first? And if I could attach kind of part B of that, which is what happens to gross margins as you start to see that flattening out and potential recovery? So just the shape of what recovery looks like in sales and margins if bookings flatten and now they seem to be improving? Vincent Roche: Yeah. Well, I think, look, as soon as demand in flex, and we get back into a more normalized growth pattern, Vivek, everything will improve. Our utilizations will improve. We have under-shipped the channel, we've under-shipped our customers. So we've been working very, very hard in the company to make sure that when demand and flex that we will get a -- we've got the supply in place. We've got lots of finished goods and deadstock inventory. So we're in a great position to address the recovery. On the first part of your question about where are we seeing the bookings improvement, pretty much everywhere, pretty much everywhere, across all the segments. And if you look at industrial, I'd say the two healthiest parts of industrial right now is, as we message to the external world, aerospace and defense and healthcare, they've got fundamentally quite different drivers to, say, the factory automation or instrumentation business. But those two sectors are holding up better than the rest. But even in a more traditional industrial sector like instrumentation, all of these new high-performance computing systems need you test equipment, so that benefits ADI. So I think, in general, it's true to say, maybe with the exception of our wireless business, most sectors are seeing a return to a more normalized bookings pattern. Richard Puccio : And Vivek, I'll give you a little more color on the gross margin outlook. So in the last call, we talked about gross margin will be 68% to 69%. We came in at the high end, a good result given the large drop in industrial that we've been talking about and with an inventory takedown of almost $90 million quarter-over-quarter. The 2Q outlook implies 67% plus or minus, a bit lower than what we thought would be given the weaker revenue, especially in industrial and the fact that we're taking down factory starts further in 2Q to reduce inventory by another $50 million to $100 million. And if I think a little bit further out to the half two outlook, tough to predict right now is the revenue and the shape of the revenue recovery will be the governor on gross margin trajectory. But our best sense is gross margin trends higher in the second half, as we don't see utilization going much lower as inventory continues to decline meaningfully at these start levels and we'll continue to leverage our swing capacity. Michael Lucarelli : And Vivek, as you asked a three-part question, I'll chime in as well for third quarter outlook. I know you gave me the outlook question. So it's hard to say, right? Our lead times are 13 weeks are lower. So we don't really have visibility into the third quarter today. But if you look back over history over the past decade, our B2B markets are about flattish sequentially in 3Q from 2Q, sometimes they're up a little bit, sometimes they're down a little bit depending where you are in the cycle, while consumers start seeing some holiday builds kind of up mid- to high single digit sequentially. So that's kind of historical context. We're not guiding in the third quarter, but that's how we should frame it. And then to add on to what Vince said about bookings. Bookings actually increased last quarter, and the quarter before that. So 4Q and 1Q bookings both improved. And what's interesting now is you look at our bookings, they're approaching parity, which is a good sign that we just see a pickup in the back half of the year. Vivek Arya : Very helpful. Thank you. Operator: Thank you. One moment for questions. Our next question comes from Harlan Sur with JPMorgan. You may proceed. Harlan Sur : Hi, good morning. Thanks for taking my questions. So if I look at fiscal '23, China was about 18% of your total revenues. It was the worst performing geography down about 13% for the full year. Because Lunar New Year was so late this year, it feels like this did add a little bit of uncertainty at the beginning of this year, but obviously, now we're post-Lunar New Year. What are the demand signs out of this region? Are orders also growing sequentially in the China regions? Are cancellations also showing signs of stabilization patterns as well? Maybe even signs of a potential pickup in the China region? Just want to get your views. Michael Lucarelli : So if you take a step back from a geo perspective, whole regions are weak, North America, Europe, China. China has been weakest the longest, I would say. The rest of Asia is doing better than the big three, but still weak as well. And like I said, China is the weakest source of demand. Around Chinese New Year, honestly, if there's something unique about it, we called out. But I think what Vince said in the last question basically was bookings are improving globally as well as in China before and after this year. So really no impact from Chinese New Year and kind of the commentary we've made. Harlan Sur : Perfect. Thank you. Operator: Thank you. One moment for questions. Our next question comes from Toshiya Hari with Goldman Sachs. You may proceed. Toshiya Hari : Hi, good morning. Thanks so much for taking the question. Vince, I'm curious how you would characterize sell-through today versus sell-in. I think at a conference a couple of months ago, you had mentioned that sell-in was tracking 15% to 20% below sell-through. Is that still the right ballpark number? And is that what you're seeing in the current quarter? And I guess, if so, if the end demand environment doesn't deteriorate over the next six, nine months? Could there be a quarter later in the year where your revenue run rate is tracking above $2.5 billion, $2.6 billion? Thank you. Michael Lucarelli : I'll grab the first part of that on the sell-in and sell-through part of it, Toshi. So selling and sell-through really relates to the channel. We reduced our channel inventory dollars the past two quarters, I would call it around a $50 million reduction, plus or minus per quarter over the last two quarters. Looking at embedded in our guidance is a much bigger reduction of channel inventory. If you want to put a number around $100 million or so in our outlook, that's probably what we're seeing on the channel side. So we're reducing a lot in the channel. Now as you look at the back half of the year, from a channel perspective, we think the sell-in and sell-through should be better matched given the actions we've taken over the last three quarters. And I'll pass it to Vince to talk a little about the customer inventory situation on the end customer side. Vincent Roche : Yeah. On the customer side of things, we've been monitoring very, very carefully across the various segments. Our customer shipment rates, their inventories and their ADI goods on hand. And we're clearly under-shipping our customers' current demands. So we feel that we've got a situation now in terms of our -- we're in a good inventory position on hand. Our customers are beginning, as Mike indicated, to replenish their order books, ADI's goods. And that gives us the confidence as the book-to-bill approaches unity that we're seeing the worst of the inventory correction. And in the second half, we will get back to a more normalized growth pattern. So as Mike said, there's a very good balance between the direct channel, the distribution channel in terms of the inventory situation, but we're ready for the upsurge. Toshiya Hari : Great. Thank you. Operator: Thank you. One moment for questions. Our next question comes from William Stein with Truist Securities. You may proceed. William Stein : Great. Thanks for taking my questions. I want to welcome, Rich, but direct a couple of questions to Vince, please. Vince, the more vertical capabilities that you talked about, it sort of suggests that you're needing to either partner more closely with a smaller number of customers or maybe you wind up pushing somewhat into their capabilities and are potentially competing with some of them. And I wonder how you contemplate managing that dynamic? Vincent Roche : Yeah. Will, thanks very much. You're -- unfortunately, the line shopped. I think I got your question about verticalization, competing with our customers potentially. Hopefully, you can hear me, okay, that it's not a two-way line problem here. Will, look, the -- we've been on a journey over many, many years now to continue to build out our core component franchise, but also add more value to our solutions. Our business has become more solutions-oriented particularly over the last decade in every single segment that we play. And that kind of domain application-driven engineering that ADI has been distinguishing it so at the edge over the last decade, that will continue, and we're continuing to build that. I talked on the -- in the prepared remarks about this point of care, acute health care solution that we've just brought to market where we've got an FDA approval. I think what's happening, Will, in the world is that there are certain places like that where we have a white space to attack. We're building a complete solution that has both hardware and software makes a lot of sense. But the truth is, even in the traditional markets and with the larger customers that we deal with, more and more footprint capture, if you like, has been taking place. Why? Because we tame our customers' complexity. And I've talked before about the asymmetry and capabilities in the Analog space between the capabilities ADI has got and our customers have got. They expect us actually to add more solution value and build more complete solutions and clearly define where the line is between where their core value is versus where ADI's core values. So I think we're not competing with our customers, but we have very vibrant discussions about where we draw the line of the labor divide, so to speak. William Stein : That helps. If I can ask a follow-up. You talked a bit about AI. It's sort of a familiar topic to us lately. Maybe too much so. Vincent Roche : Not much. William Stein : There's a narrative here where there are some creative capabilities, in fact, I would say, engineering-focused capabilities that maybe made more efficient or productive with Generative AI. In a world where the story about Analog design engineer capability being so limited and that driving a significant advantage for ADI. I wonder if that story changes at all because of this capability. Have you started using this for circuit design? Or do you anticipate that it could be used by others, either competitors or customers? Thank you. Vincent Roche : Yeah, it's a good question. Well, look, everybody is trying to figure out the meaning of the AI in their businesses. We're using AI today in our tool chains. We're using machine learning and AI in our products, around our products. We're starting to use it in our business. And I think -- I believe that anything that can be -- anything that is routine -- and that can be automated, that's the way of technology. Technology automation will take over the things that are more routine. We play very much at the high end of the performance spectrum. So unless there's generative intelligence that can outperform our imaginations, which I don't see any time in the foreseeable future. We're truly in a realm where the intellectual property value and the learning system that we've got in this company will matter more and more. But yeah, I think we view AI as a tremendous opportunity. As clearly in the product development process from how the products are designed, what we put as ingredients in our products, and we're also, by the way, putting AI into the customer support tool chain. So it is a part. We're embracing it, and we believe that it will be an accelerator and the copilot, if you like, with our engineering population. William Stein : Thank you. Michael Lucarelli : Thanks, Will, it sounds like from your cell phone line, we do need some more 5G coverage. So next question, please? Operator: Thank you. One moment for questions. Our next question comes from Timothy Arcuri with UBS. You may proceed. Timothy Arcuri : Hi, thanks a lot. Can you talk to any period costs versus underutilization charges that you're taking? And any of those -- how much of a headwind are those now? And how much will those help you as they might reverse themselves coming out of the downturn? Thanks. Michael Lucarelli : So I think your question is on how much of the impact on our gross margins underutilization versus mix. I think if you look here, our peak gross margins were about 74%. Our outlook, as Rich pointed out, embeds about 67%. That decline is really mix and utilization, about equal parts, I'll call it. As you look to the back half of this year, it depends what mix is going to do. I think industrial is bottoming here, so that should help a little bit. From a utilization standpoint, Rich also pointed out, our starts are low enough to reduce inventory meaningfully. We've been doing that. We'll do it again in 2Q. So I don't see it starts going down, they're probably start going up, which should provide a tailwind to gross margins. How fast the gross margins pick up really depends on those 2 factors, how fast the revenue picks up and how much of it relates to the industrial sector. Timothy Arcuri : Okay, Mike. But I guess, are there any inventory charges? That's the question. Michael Lucarelli : So from inventories, yeah, I would say, a good question. You're right. We have a lot of inventory. As you can see on our balance sheet. The -- there's no acceleration of inventory charges in our gross margins. The inventory charge from a reserve standpoint have been elevated for the past few quarters, and they probably stay that way as you go into the back half of this year into next year. But that's not a headwind anymore. It's already kind of built in the run rate. Timothy Arcuri : Okay, awesome. Thanks, Mike. Michael Lucarelli : We will go to our last question, please. Operator: One moment for our last question. And our last question comes from C.J. Muse with Cantor Fitzgerald. You may proceed. CJ Muse: Yeah. Thank you for taking the question. You talked about auto being down sequentially, but seeing, I guess, the best performance out of all the different segments. Curious if you can kind of walk through what you're seeing from Tier 1 auto correction and whether you think that will be completed exiting April as well? Thanks so much. Michael Lucarelli : Yeah. Sure. From the auto standpoint, C.J., I would say, yes, there is definitely an inventory correction going on in auto like or market as Vince pointed that out, the supply fracture at everyone is, to a lesser degree, than auto than other markets, but it's not really because of the inventory. It's because of the growth drivers in that business, whether it's BMS, GMSL AB functional safe power, the growth in those areas are offsetting the overall call it inventory digestion in automotive area. You're right to say that on the Tier 1 side or the OEM side, there's some froth inventory. But we're seeing that being digested. Will it be all complete? By the second quarter, we'll see, but I do feel good about those growth areas continue to grow this year. And for the full year, will auto grow, I don't know. We'll see. But it really depends on how strong the growth is in the growth areas and how much of the overhang on the inventory side is. But net-net, we do feel good about auto being our best performing end market here in 2Q and for the full year '24. Vincent Roche : All right. Thank you, CJ. Thanks, everyone, for joining our call this morning. A copy of the transcript will be available on the website. Thanks for joining us, and have a great rest of the day. Operator: Thank you. This concludes today's Analog Devices conference call. You may now disconnect.

Operator: Good morning and welcome to the Analog Devices Fourth Quarter Fiscal Year 2023 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. Michael Lucarelli: Thank you, Abigail and good morning everybody. Thanks for joining our fourth quarter fiscal 2023 conference call. With me on the call today are ADI’s CEO and Chair, Vincent Roche; and ADI’s Interim CFO, Jim Mollica. For anyone who missed the release, you can find it in relating financial schedules at investor.analog.com. On our disclosures, the information we are about to discuss includes forward-looking statements, which are subject to certain risks and uncertainties as further described in our earnings release and our periodic reports and other materials filed with the SEC. Actual results could differ materially from the forward-looking information. These statements reflect our expectations only as the call today. We undertake no obligation to update these statements, except as required by law. Our references to gross and operating margin, operating and non-op expenses, tax rate, EPS and free cash flow will be on a non-GAAP basis, which excludes special items. When comparing our results to historical performance, special items are also excluded from our prior periods. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures and additional information about our non-GAAP measures are included in today’s earnings release. Two comments before we go prepared remarks. We adjusted our mapping to better align revenue to customer end markets. This resulted in slight changes to our end market mix with industrial increasing at each of the other markets slightly lower. These changes are reflected on our web schedule in the quarterly results section for the last 3 years. And second, one more quick reminder, the first quarter of 2024 is a 14-week quarter. And with that, I’ll turn it over to ADI’s CEO and Chair, Vincent. Vincent Roche: Thank you very much, Mike and a very good morning to you all. Though the industry is obviously moving through a more challenging period of the business cycle, I am very pleased to share that we are preserving the strength of our financial performance while preparing for the market’s recovery. Fourth quarter revenue was $2.7 billion, led by double-digit year-over-year growth in our automotive sector. The combination of careful expense management and our employees’ commitment to high standards of execution enabled us to deliver operating margins of 44.7% and EPS of $2.01 for the quarter. For the fiscal year, ‘23 again set new high watermarks with revenue reaching $12.3 billion, supported by all-time highs in the industrial and automotive sectors. This resulted in EPS of $10.09 up 5% from a year ago. Notably, we returned a record $4.6 billion to shareholders in 2023, exceeding our 100% free cash flow return target. Since the closing of Maxim just over 2 years ago, ADI has returned roughly $12 billion to shareholders or nearly 15% of our market cap. Over the same time, we have reduced our share count by more than 6% and increased our dividend per share by 25%. Now looking to fiscal ‘24, the near-term dynamics remain uncertain. As you will recall, last quarter, we outlined a broad-based inventory correction across all markets and geographies, reflecting the deteriorating macro conditions and our improving lead times. Consistent with our view 90 days ago, we expect the customer inventory overhang to persist through the first half of the year. Challenging times like these confirm the wisdom and the strength of our business model. The diversification of our business across customers, applications and products helps to limit volatility while preserving profitability. Building upon that foundation, we took actions to better ensure we can deliver operating margins in the low 40s and solid free cash flow despite the revenue decline. Importantly, however, we are not simply battening down the hatches. Our resilient financial model enables us to continue making the strategic investments necessary to allow us to capitalize on the upside when the business inflects higher. That longer term focus and commitment is why our customers have the confidence to increasingly depend on us as a key strategic partner. I have been very heartened by my conversations with customers across many markets and geographies over this past quarter. Despite the near-term challenges, they share our optimism that the intelligent edge is enabling a future replete with opportunity, and they are clear about the expanding role that they expect ADI to play in their success. Our customers’ optimism is reflected in the continued expansion of our design win pipeline, which increased by double-digits again in 2023. That growth was enhanced by sustained momentum in our Maxim revenue synergies pipeline, which is tracking ahead of our initial expectations. We expect synergy-driven revenue acceleration in 2025 putting us on a path to achieve our goal of more than $1 billion in revenue synergy by 2027. The combination of our strong design win growth with recurring revenue streams from our 75,000 product SKUs, which have average life spans of a decade or more creates a business with high barriers to entry that’s both resilient and rich with growth opportunities. Now, let me share some examples of recent wins with you. In Industrial Automation, we are increasingly delivering more complete solutions. At a top digital factory automation supplier, for example, we have recently leveraged our anchor position in software configurable I/O to attach additional solutions value across power, isolation and connectivity. As a result, we captured 3x the bill of materials and secured design wins across their entire platform. In Industrial Instrumentation, we have increased our design wins at SOC and memory test market leaders. Our next-generation solutions increased channel density and throughput while reducing energy consumption by up to an incredible 30% per system. These are critical parameters for testing complex, high-performance compute GPUs and high-bandwidth memory for artificial intelligence systems. Looking now to automotive. In electrification, momentum continues for our wireless battery management system. This novel solution enables lower weight, greater scalability and improved manufacturing productivity, driving down the total cost of ownership for our customers while increasing ADI’s content. Last quarter, we secured our fifth customer, a top 10 EV OEM. We’ll begin to deploy our wireless solution in their next-gen EVs in 2026. Now furthermore, during the year, ADI reinforced our industry-leading position in automotive, high-performance functionally save power. To that end, we won next-generation power for ADAS systems at four top suppliers this past year. These wins add another growth vector to our automotive franchise, which has benefited from strong momentum across electrification and in-cabin connectivity. This proliferation of ADAS is benefiting our high-speed GMSL connectivity portfolio. GMSL has been one of our fastest growing areas and a major revenue synergy generator for us. In the last year, we were awarded 4 new wins across leading North American, Asian and European OEMs. We are also expanding our opportunity and increasing our ROI, winning multiple design wins in industrial areas – in adjacent areas such as autonomous robotic systems. Our cloud infrastructure business is beginning to benefit from the power challenges and connectivity requirements necessary in AI ML systems. Notably, a large hyperscaler designed our high-performance power and protection solutions into their next-generation AI platform. And in connectivity, systems are upgrading now to 1 terabit per second and require our highest level of precision control solutions to efficiently support the growth in data generation. In consumer, we won multiple power management sockets in a portable application and a key customer. These wins truly show the combinatorial power of our acquisition strategy. We leveraged our industry leading cell and switcher, Maxim’s cost optimized process technology, and our customer relationships to secure these wins. And lastly, in healthcare, Maxim strengthened our comprehensive suite of technology for personal monitoring solutions, adding sensor AFEs, microcontrollers and ultra-low power technologies. We secured a design win at a leading continuous glucose monitoring customer this year. Our solution increases the robustness, accuracy and power efficiency of their glucose center, thereby helping to extend its life from days to weeks. So in summary, we’re proud of another year of record revenue and earnings. We continue to demonstrate the power of our business model, which delivers results through all phases of the business cycle. Our continued strong investments in technology and business innovation, customer engagement, and our hybrid manufacturing model positions ADI and our customers to take maximum advantage of the opportunities at the intelligent edge when the business recovery arrives. Now I’d like to pass the call over to Jim. Over the past 35 years, Jim has taken on a number of critical financial leadership roles across ADI, enabling him to develop a breadth and depth of understanding of our business that very, very few possess. So I’m pleased now to have him on my leadership team and to be joined by Jim on today’s call. Over to you, Jim. Jim Mollica: Thank you for that introduction, Vince, I’m excited to be here today, and let me add my welcome to our fourth quarter earnings call. Starting with a brief recap of fiscal 2023 results. Revenue increased 2% to $12.3 billion, marking ADI’s third consecutive record year. Gross margin of 72.5% moderated from last year’s record results of 73.6%. Operating margin of 48.9% decreased 50 basis points, roughly half the decline of gross margin, reflecting strong operating expense control. All told, EPS increased 5% to a record $10.09. Now moving to fourth quarter results. Revenue of $2.72 billion declined 12% sequentially and 16% year-over-year, finishing above the midpoint of our outlook despite the challenging operating environment. Industrial represented 50% of quarterly revenue, declining 19% sequentially and 20% year-over-year. As expected, we experienced broad-based weakness as inventory adjustments continued across our diverse customer base. For the full year, Industrial increased 6%, achieving its third straight record result with strength across instrumentation, test, energy and aerospace and defense. Automotive, which represented 27% of quarterly revenue was down slightly sequentially and up 14% year-over-year, marking 12 straight quarters of double-digit growth. For the year, Automotive also achieved its third straight record result, increasing 19%, with strong growth across our functionally safe power, battery management and in cabin connectivity solutions. Collectively, these were up more than 30%. Communications, which represented 13% of quarterly revenue, declined 6% sequentially and 32% versus a record fourth quarter 2022. For the year, Communications decreased 13%, with steeper declines in wireless versus wireline. And lastly, Consumer represented 11% of quarterly revenue, down 6% sequentially and 28% year-over-year. Consumer decreased 20% in fiscal 2023, driven by industry-wide weaker demand and ongoing inventory corrections. Now on to the rest of the P&L. Fourth quarter gross margin was 70.2%, down sequentially and year-over-year driven by unfavorable product mix, lower factory utilizations and lower revenue. OpEx in the quarter was $692 million, down $60 million sequentially. These significant savings were driven by disciplined expense management and lower variable compensation. As a result, operating margin came in at the higher end of our outlook of 44.7%. Non-op expense finished at $65 million and the tax rate for the quarter was 12.5%. All told, EPS was $2.01, slightly above our outlook. Now on to the balance sheet. We ended the quarter with approximately $1 billion of cash and cash equivalents and a net leverage ratio of 0.9x. Inventory decreased nearly $70 million sequentially, driven by finished goods. Channel inventory also declined as we actively manage sell-in to be less than sell-through. Given lower revenue, inventory days increased to 188 and channel weeks ticked up slightly, ending within our target range of 7 to 8 weeks. Now moving on to our cash flow items. Operating cash for the quarter and the year was $1.2 billion and $4.8 billion, respectively. CapEx for the quarter was $476 million and for fiscal 2023 was $1.3 billion. These CapEx numbers are gross figures, which do not include the benefits of the investment tax credits or grants related to both the U.S. and European Chips Act. Full year free cash flow was $3.6 billion or 29% of revenue. During the year, we returned 130% of free cash flow via roughly $3 billion in share repurchases and $1.7 billion in dividends. Now moving on to the guidance for the first quarter, which will be on a 14-week basis. First quarter revenue is expected to be $2.5 billion, plus or minus $100 million. Once again, we expect sell-through to be higher than sell-in. At the midpoint, we expect all end markets to be down sequentially. Industrial is expected to be down the most, followed by Consumer and Comms with Automotive faring the best. Operating margin is expected to be 41.5%, plus or minus 70 basis points. Our tax rate is expected to be 11% to 13%, and based on these inputs, adjusted EPS is expected to be $1.70 plus or minus $0.10. I will conclude my remarks with a brief update on the current operating backdrop. As Vince mentioned, we continue to see broad-based weakness across markets and geographies as customers work to reduce inventory and a stressed macro backdrop. Importantly, our lead times are now back to normal levels with 95% of our products shipping within 13 weeks, given our customers high confidence and timely supply. Encouragingly, during the fourth quarter, we’ve seen cancellations fall and bookings stabilize. This gives us greater confidence that the ongoing inventory correction will taper through the first half of the fiscal year. As we discussed last time, we’ve taken actions to preserve the integrity of our income statement, our balance sheet and our cash flow statements. Let me provide an update in these areas. We are once again lowering internal utilizations with a goal of significantly reducing inventory in the first half of the year. Our hybrid manufacturing model and ability to swing in external wafers will help us moderate the decline in factory starts. The unique ability positions us to deliver healthy gross margins despite the significant revenue decline from a year ago. Given the enhancements made to our hybrid manufacturing model over the last 2 years, we now plan to slow the expansion of our internal fabs and back-end facilities. As a result, we expect 2024 CapEx to be between $600 million and $800 million or down about 45% versus 2023. Importantly, this CapEx reduction does not compromise our long-term growth or resiliency efforts that gives customers multiple locations to source ADI supply. And lastly, we took additional steps to structurally reduce our OpEx. These actions, combined with lower variable comp and seasonally lower spend in the first quarter will result in a slight decline in OpEx sequentially even with the extra week. So in closing, our ability to generate operating margins in the low 40s, which were our previous highs in the last cycle demonstrates the durability of this franchise and how we’ve enhanced our operating model over time. And with that, I’ll give it back to Mike for Q&A. Michael Lucarelli: Thanks, Jim. Welcome to the call. It’s great to have you. Now let’s get to the Q&A session. [Operator Instructions] With that, we will have our first question please. Operator: Thank you. [Operator Instructions] Our first question comes from Ambrish Srivastava with BMO. Your line is open. Ambrish Srivastava: Hi, thank you. Thank you very much for taking my question. Vince, it looks like order has been restored in the diversified Analog world with – it looks like a very normal cyclical downturn and with you, what you’ve built is a structurally more profitable company holding to 40% – low 40% operating margin line. My question is on a bottoming process. And I know we’re not there yet, but can you just remind us or help us understand metrics you’re following regarding cancellations, pushouts, backlog, you did talk about cancellations, Jim. And then kind of related to that, is if you look at past cycles, does automotive needs to go down double-digit year-over-year decline as industrial has been there? And how should we think about that? Thank you. Vincent Roche: Yes. God morning, Ambrish, and thank you for the question. So yes, we noted last quarter that we believe the inventory digestion issue would last two to three quarters. And I’d say, given the new information that we have, our conviction of that has actually grown. We have, through careful analysis and observation, we’ve seen inventory digestion accelerate at our largest direct customers across the board and across all the various segments that we support. And we’re continuing to reduce our channel inventories as well. So I think very encouragingly, even with normalized lead times, as we’ve said, we’re shipping that kind of 95% of customer requests within a quarter, which is very, very normal. We saw against that backdrop, a sharp drop in cancellations, and though the book-to-bill was below unity in the fourth quarter. We did see our bookings improve sequentially. So that gives us a lot of confidence as to what’s going on. Regarding Automotive, I’m not sure, by the way. The automotive – the assumption you’re making is that there could be a double-digit drop in Automotive. I’m not sure about that because we know that cars are consuming about 10% more silicon per year. And in fact, we continue to grow in share and ASP in the car. So my own sense is that against what could be a very challenging macro backdrop during 2024, that of all the elements of our portfolio, automotive, we expect will fare best of them all. And we still have pretty strong confidence that we’ll grow in 2024. Ambrish Srivastava: Thank you, Vince. Michael Lucarelli: Thanks, Ambrish. Next question please. Operator: [Operator Instructions] Our next question comes from Vivek Arya with Bank of America Securities. Your line is open. Vivek Arya: Thank you for taking my question. Vince, I’m trying to reconcile the comments that were made about some stabilization in bookings. That sounds like a positive. But I think in the prepared remarks, you also said some headwinds that could persist through the first half of the fiscal year, suggesting that April could be a sub-seasonal quarter. So I know you’re not guiding specifically out to April, but what is the right way to look at the puts and takes as we think about April? Can it be seasonal, whether it not be seasonal? And also this extra week from January, did that really give you that 7.5% push, so we should be taking that out of April. So any way to help us give us a sense for how the April could shape up would be very helpful. Thank you. Vincent Roche: Yes. Well, I think it’s – Vivek, thank you for the question. It’s one quarter at a time here. What I will say contextually is that we expect the inventory overhang to have been depleted by the start of our third quarter, which is in May of next year. So, we still remain pretty confident about that, given the dynamics that I just outlined. But the other parts of the cycle that we’re really – I think everybody is seeing pressure from is the macroeconomic climate and particularly the decline of semi business in China. So that’s the piece. I mean that is the piece that isn’t well understood. But all that said, the macro will be the governor on what happens in the second half of the year. And I think another quarter or so will give us a lot more confidence in terms of what is possible in the second half. But I will let Jim answer as well give you some particular statistics to underpin our assumptions here. Jim Mollica: Thanks, Vince. Yes, let me just speak to – let me unpack lead times a bit first. As we said, lead times are now kind of back to where they were, 95% of our products are shipping within 13 weeks. And we’ve seen steady improvement in lead times in both 3Q and 4Q. And I guess from the refreshing side of that is from a customer viewpoint, customers have now adjusted to those shorter lead times. And our order rates basically in the fourth quarter basically stabilized in fact, picked up in 4Q versus 3Q. So that’s good news for us as the customers have shopped and their signal into us. As Vince said, our book-to-bill will still be low on there, but it is kind of the first lines there. Additionally, cancellations in the fourth quarter were down meaningfully for the first time and probably close to a year. And cancellations on a shorter time fence were also very, very low. So that’s good for us. From a channel perspective, we’re being cautious. We continue to basically ship into the channel less than our sell-through, which basically will position us well for when the upswing occurs. And from an end market viewpoint, let me just close on that point. All markets in 1Q will be down on a quarter-to-quarter basis. Yes, that’s it. Mike, anything else? Michael Lucarelli: Yes. And it’s very confusing with a 13 to 14-week card, you’re right, Vivek. I’ll kind of add some commentary around that, how to think about that. Normally, 2Q from 1Q and a 13-week to 13-week basis up about 5%. And given what have been said, inventory overhang and bookings getting better. It still feels like we should probably grow some, but I don’t think 5% is likely. Why? There’s still an inventory overhang going on. So if you think 13-week to 13-week were about flattish, plus or minus, in 1Q to 2Q, that’s probably the way to think about it. That means if you include the extra week, it’s probably down about 5% plus or minus sequentially. So I hope that helps back a little bit because it is confusing. And with that we go to our next question, please. Operator: [Operator Instructions] Our next question comes from Joseph Moore with Morgan Stanley. Your line is open. Joseph Moore: Great. Thank you. I wonder, I mean now that you’re in a revenue downturn that looks more severe than we saw the last cycle, what are you seeing in terms of pricing? And are people – you obviously raised prices during the upturn. Are people asking you to give that back? And is that a different conversation on kind of a like-for-like basis versus approaching kind of new design win activity? Vincent Roche: Yes. Thanks, Joe. So look, I think overall, the pricing of our existing portfolio is very, very resilient, very stable. And I think something to note as well is that every new generation of product that we build is capturing more value. And – so if you look at the legacy, it’s very stable. You look at the legacy franchise. We’ve got tremendous stability. We’re capturing more new value per new socket. And I don’t see any particular change. And we, as a company, play at the high end of the performance curve, which enables us to get this innovation premium that is a very, very critical part of our gross margin structure and our revenue growth. And our job is to continue to invest to make sure that we stay on the cutting edge and get well rewarded for that. We fight very, very intensely at the inception of new designs. But as I said in the prepared remarks, Joe, we’re seeing generally speaking, our pipeline of new product design wins as well as the more established products continue to grow quarter-by-quarter, year-over-year. So I feel confident that the pricing that we have managed to increase over the last couple of years, 2.5 years that they’re about to reflect the increased cost of goods. We’ll hold those prices. So overall, we’re bullish about where we are and what the pricing environment holds in the future. Joseph Moore: Thank you. Michael Lucarelli: Thanks, Joe. Operator: [Operator Instructions] Our next question comes from Stacy Rasgon with Bernstein Research. Your line is open. Stacy Rasgon: Hi, guys. Thanks for taking my questions. I had a question on OpEx and gross margins into Q1. So you said OpEx was down slightly even with the extra week. So, if I sort of understand a little bit, it would imply the normalized like 13-week OpEx would be running around, I don’t know, 640 maybe, maybe a little lower. Once we get through into Q2 when the ex-week rolls off, is that the right sort of like steady-state OpEx run rate to think about as we go through the year and some – are there some other drivers? And I guess if those numbers are right, it sort of implies gross margins implied in Q1 maybe a little below 70, maybe 69, is that the right kind of level that you are thinking about as the revenue is going to drop here? Jim Mollica: Yes, Stacy, it’s Jim. Let me take that. Let me the margin one first, and then I will talk about the OpEx for the quarter. There is many inputs. There is many levers to the gross margin. There is revenue that’s priced, there is mix as factory loading utilization levels. And let me just try to unpack that a bit. Vince mentioned on the pricing side, basically, that’s stable. So, that’s not a drag to gross margins as we move forward. On the revenue side, basically, we are down – the midpoint of our first quarter guide on a 13-week basis is down, approaching 30% from our previous peak. So, basically revenue is a headwind for us there. Mix basically is unfavorable as well. As you heard in my prepared remarks, industrial was down 19% and 20% last quarter on a year-over-year and sequential basis, and that will be down again in first quarter. So, mix is a headwind for us. When you put all those puts and takes together, we would expect basically gross margin will fall below 70% in the first half of the year at these trough levels. I think if you think about something in the 68% to 69% range, is probably a good range for this trough revenue range. So, that’s kind of the gross margin. On the OpEx side, as I mentioned, our 4Q OpEx basically was down about $60 million on a sequential basis. This was the combination of reducing discretionary spend and of course, a much lower variable comp. Looking into 1Q, we expect that to be down again even with the extra week. And it’s fair to say that probably you can think about 1% to 2% there. This reduction relates to the actions that we structurally took to reduce OpEx as well as a lower typical seasonal spend in 1Q as well. We don’t guide 2Q, but just to give you a sense there, when you look at 2Q, it’s probably best to compare that to the 4Q, which was a like 13 to 13-week comparison. And when you are looking at 4Q ‘23 versus 2Q ‘24, given some of the structural modest reductions we had made, we would expect OpEx in 2Q to be down a few percent from the 4Q operating levels, so I hope that helps. Stacy Rasgon: That’s helpful. Thank you so much guys. Michael Lucarelli: Thanks Stacy. I always appreciate your two-part and one-part question. With that, next question, please. Operator: [Operator Instructions] Our next question comes from Chris Danely with Citi. Your line is open. Chris Danely: Hey. Thanks. Just a question on industrial, historically this has been a pretty strong sector for you guys, but it seems like it’s – the revenue decline in industrial is worse than the overall company. Can you just talk about why that is and maybe broader speaking, are the bookings or the revenue falling more because the macro is worse than expected, or the inventory situation out there is just worse than you guys thought? And do you think you will be able to hold that 70% gross margin floor for the fiscal ‘24? Thanks. Vincent Roche: Yes. Thanks Chris. So, yes look, we have come off a record year for ADI and for the industrial sector. But I would say in the second half of ‘23, we began to see momentum slow on the order side of things. And in the fourth quarter, it’s true to say that weakness in the industrial sector broadened and hit all the various market segments with one exception, the aerospace and defense area. And I think when we look into 2024, given the weaker macro backdrop, and we expect the inventory digestion to continue through the first half particularly at the broad market customers who are suffering most here. So, I think, as Jim said, when we talk about gross margins, the weaker industrial over the first half of the year, that weaker mix, if you like, will impact the gross margins. And for the trough periods here, we are thinking kind of 68%, 69% as reasonable assumptions for gross margin in that period of time. So, it really is, at this point, it’s an adjustment of inventories at our customers and how fast we experience the recovery will determine on the macro. But again, I think it’s true to say, during the first half of this year, we do expect to get this overhang of inventory behind us and get back to a more normalized growth pattern in the second half of the year. Jim, do you want to take a comment? Jim Mollica: Yes. Chris, I think just a couple of points there. Vince talked about at the trough revenue, gross margins in the 68% to 69% range, gross margins at 70% for the year, I think that was the first part of your question as well. A lot of that will depend upon when the demand comes back in terms of – so we don’t really guide for the year, but that’s probably dependent upon revenue coming back to a more normal level. Let me just add a few points, though. We are – utilization levels basically brought them down in 4Q, we are going to bring them down again in 1Q. You see the inventory reduction of $70 million in 4Q, which was a little bit better than I think we guided last quarter, you are going to expect that inventory to be reduced at a similar level in 1Q and again in 2Q. And what we are also doing now is we are activating our hybrid manufacturing strategy. So, we are actually swinging wafers from external back in-house, which moderates the factory load, which gives a little bit of a cushion on that gross margin side as well. So, just a little bit more color as what you can expect for us in the second quarter here. Chris Danely: Thanks a lot guys. Michael Lucarelli: Thanks Jim. With that, next question. Operator: [Operator Instructions] Our next question comes from Tore Svanberg with Stifel. Your line is open. Tore Svanberg: Yes. Thank you and congratulations on the results in this tough environment. I had a question about CapEx. So, one of your competitors talk about this geopolitical dependable capacity that they are investing in. You are going showed the complete other the way, you are reducing CapEx a lot for this year. Help us understand a little bit what your partners are doing – your founder partners are doing for you to sort of feel comfortable that you don’t have to spend as much in CapEx going forward? Thank you. Jim Mollica: Thanks Tore. Why don’t we take that in, so I will start. Vincent Roche: I will sort of add some color. Jim Mollica: Yes. So let me just – let me pause and take a step back on CapEx for a second. So, at our Investor Day, we outlined basically elevated CapEx in the high-single digit range for 2022 and 2023. And then long-term, that would actually trend back down to mid-single digits. As I have said, this past year, CapEx was about $1.2 billion on a gross basis, which is about 10% of sales, which was a bit higher basically due to the revenue fall off that we saw in the second half of the year. This year, as I have said, we are basically slowing our capacity expansion and our CapEx, given kind of the short-term demand that we are actually seeing there. So, from a CapEx viewpoint, we are going to expect that to drop by about $500 million in our FY ‘24. And as I have noted, this figure doesn’t reflect any of the benefit from either the U.S. or European Chips Act. From a capacity viewpoint, what does that mean, that basically means that we will be able to still double our internal capacity footprint by 2025. Originally, we were thinking that was going to take place more in the 2024 time period. But given the macro and the demand outlook, we are comfortable with that. So, we don’t need basically all of that capacity in the short-term. From a customer viewpoint, from a swing capacity viewpoint, our goal is to be able to basically swing 70% of our product portfolio from internal to external fabs. That’s good for our customers because it gives our customers the ability to dual source, and that really creates a rich and resilient supply chain with multiple options for our customers. And from a gross margin viewpoint, internally, that allows us to moderate the factories a bit with this additional swing coming in-house as well. So, we are comfortable with that strategy. I don’t know if Vince has…? Vincent Roche: Yes. So, let me – good morning, Tore, let me add a couple of piece of color to what Jim has just said. So, most of ADI’s revenue today is built on process technologies that are 180 nanometers [ph] and above. Now in digital technology terms, that’s a very, very old process technology. That’s more than 25-years-old in terms of its currency. But in the analog space, that is still a very contemporary process node, so more than 70 – a little more than 70% of our revenue today is produced on process technologies at 180 nanometers and above. And as Jim said, we have gone through a major internal expansion to give us more flexibility and agility in terms of where and how we manufacture those process technologies. And we are making all these investments that we have made on the internal fabs of 200-millimeter wafers. So, the tool chains are less expensive, and we are able to get tremendous return on investment over many, many decades on the investments that we are making. So – and I think below that, for the, let’s say, at the final line geometry nodes, we have very, very good alternatives with our external partners who are in a very, very really important piece of how we make the hybrid manufacturing model work. So, anything that is kind of 90 nanometers and below, it’s 300-millimeter wafers, and we secure that production with multiple sources across the globe. Tore Svanberg: Very helpful. Thank you. Michael Lucarelli: Thanks so much Tore. And we will go to our last question, please. Operator: [Operator Instructions] Our last question comes from Timothy Arcuri with UBS. Your line is open. Timothy Arcuri: Thanks a lot. I had a question on inventory. It sounds like you are planning to bring it down quite a bit from here. And you mentioned that the target is 120 days, but of course, it depends on what the base of revenue is. So, can you quantify how much more you plan to take out of your inventory? It seems like it could come down maybe a couple of hundred million dollars more from here? And then also maybe if you can also quantify – and this is kind of a hard question to answer, but how much is selling below sell-through? I know you get some metrics, particularly inside of distribution? Thanks. Jim Mollica: Hey Timothy, let me take that. Just to be clear, let me kind of we step that back what I have said. So basically, inventory in fourth quarter was down $70 million, and that was on a quarter-on-quarter compare. That was almost all at the finished goods level. In 1Q, we plan to take inventory down by a similar amount. And then we will do that again in 2Q. That’s on a dollar basis, not on a days basis, just to be clear there. So, over the course of three quarters, fourth quarter and the first half of ‘24, we expect inventory to be down in the $200 million plus range for that. In terms of the channel, as I mentioned, we are – our sell-in to the channel is lower than our sell-through. And in the fourth quarter, that was – it was in the $50 million range. And I would probably expect probably a similar number there in first quarter, yes. And with that… Vincent Roche: Tim and your question on the days of inventory, I would say our pre-COVID target was 120, we are close to 190 today. I think both of them are going to be wrong when all the dust settles, but we will re-up you on kind of the long-term inventory days model at a future call. And with that… Timothy Arcuri: Okay. Thanks. Vincent Roche: Good Tim. Thanks everyone for joining us this morning. A copy of the transcript will be available on our website. Thanks for joining the call. I appreciate your interest in ADI and have a great Thanksgiving. Operator: This concludes today’s Analog Devices conference call. You may now disconnect.

Operator: Good morning, and welcome to the Analog Devices Third Quarter Fiscal Year 2023 Earnings Conference Call, which is being audio webcast via telephone and over the web. I'd like to now introduce your host for today's call, Mr. Michael Lucarelli, Vice President of Investor Relations and FP&A. Sir, the floor is yours. Michael Lucarelli: Thank you, Michelle, and good morning, everybody. Thanks for joining our third quarter fiscal '23 conference call. With me on the call today are ADI's CEO and Chair, Vincent Roche; and ADI's CFO, Prashanth Mahendra-Rajah. For anyone who missed the release, you can find it and relating financial schedules at investor.analog.com. on to the disclosures. The information we're about to discuss includes forward-looking statements, which are subject to certain risks and uncertainties as further described in our earnings release, and other periodic reports and other materials filed with the SEC. Actual results could differ materially from the forward-looking information, as these statements reflect our expectations only at the date of this call. We undertake no obligation to update these statements except as required by law. Our comments today will also include non-GAAP financial measures, which exclude special items. We are comparing our results to our historical performance, special items are also excluded from prior periods. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures and additional information about our non-GAAP measures are included in today's earnings release. And with that, I'll turn it over to ADI's CEO and Chair, Vincent Roche. Vince? Vincent Roche: Thank you, Mike, and a very good morning to you all. ADI executed well in the third quarter and delivered results within our expectations despite the challenging operating environment. Revenue was nearly $3.1 billion, led by growth in our Industrial and Automotive markets once again. Gross margin remained strong, above 72%, operating margin was nearly 48% and EPS was $249 million. This continued profitability reflects our portfolio's resilience as well as the innovation premium that it commands. I want to turn to the current business environment now just for a moment. As we shared last quarter, we believe we're in a period of customer inventory reconciliation following three consecutive years of steady growth. Through our customer conversations, it's evident these accelerating inventory adjustments relate to the weakening macro backdrop and ADI's rapidly improving lead times. Importantly, we believe we shipped below end market consumption in the third quarter and expect to do so again in the fourth. This will help normalize our customers' inventory more quickly and position us to return to growth more quickly in the coming quarters. Stepping back, while near-term dynamics or turbulence, our long-term confidence remains undiminished. Over the last several decades, we have enhanced the resiliency of our global business, defined by our diversified customer and product portfolio and flexible hybrid manufacturing model. This enables us to ensure softer demand periods while sustaining strategic investments to ensure that we capitalize on the upside when the business inflects. It's these characteristics and our alignment to numerous concurrent secular growth trends that give us confidence that ADI will deliver on our long-term model of 7% to 10% revenue CAGR. Now one area underpinning this growth outlook are the applications tied to sustainable use cases, which currently represents about 1/3 of our total revenue. And today, I want to unpack a vital part of this, the evolving electrification ecosystem that is driving growth in our industrial and automotive markets. As the world marches to net 0, we need to eliminate 51 gigatons of global greenhouse gases emitted every year. Fossil fuels are by far the largest contributor accounting for more than 75% of all emissions. And at the same time, global energy consumption is forecasted to increase by 50% by 2050. A major unnecessary energy transition is underway and an upgraded and expanded energy grid is foundational to support a decarbonization pathway. Making the shift through renewable energy sources in both commercial and residential infrastructure as well as electric vehicles and global transportation will reduce greenhouse gas emissions. These moves also create new challenges in the generation distribution, consumption and smoothing of energy supply. ADI solutions are embedded across all phases of this electrification journey from upgrading the grid infrastructure to forming and managing the vehicle battery. The common thread woven through all these applications is the high-performance precision signal processing, control and power management capabilities they require, capabilities in which ADI excels. Now today, I'll bring the story to life at the application level, starting with grid infrastructure. Overall, today's electrical grid is undergoing modernization to meet current and future demands. Historically, traditional energy sources like coal, oil and gas were centralized and distributed in one direction from the grid to the consumer. Today, renewable energy sources like wind and solar are more distributed necessitating a dynamic bidirectional flow of energy. To achieve this, the grid must be able to adjust performance across the network in real time, which requires an exponential increase in monitoring and storage capabilities. And for example, our collaboration with the Enel Group provides smart meters and grid digitalization solutions for distribution system operators. Here, ADI's control and sensing technologies are enabling high-performance, precision monitoring and data creation at the heart of the digital substation. And we're leveraging our mixed-signal digital and algorithm technologies to enable greater intelligence at the grid's edge. Now moving to energy storage systems, which are critical to mitigate intermittency issues across the network. ADI is a leader with our technologies used in 60% of energy storage systems across residential, commercial and grid scale networks. Leveraging our battery management system technology or BMS. We're increasing capacity and improving energy utilization in energy storage systems, which maximizes the battery's lifetime value. These monitoring and storage challenges extend to the grid's edge as well, including EV charging stations, ADI's energy metrology, isolation and sensing technologies, help enable a broader range of applications in AC and DC charging equipment. In addition to these important applications in our highly diverse industrial segment, our high-performance signal processing platforms and domain expertise are helping to electrify the automotive market. Here, our technology is a key enabler in the transition from combustion engines to cleaner electric vehicles by increasing range and lowering cost. And I'll start with BMS. As we've shared before, we are the leader in this area with our BMS solution designed into 16 of the top 20 EV manufacturers. We're currently sampling our eighth generation solution, which utilizes software and algorithms to enable physical measurement capabilities all the way into the battery cell. These advances in edge processing change the game in how the internal battery health is managed, supporting faster charging and better range prediction. An extension of this is our wireless BMS solution, a first in the industry. It has all the benefits of our wired solution and enables a scalable battery architecture, with quicker and more cost-effective production cycles. Currently, our wireless BMS is designed in at four OEMs, and we expect another large OEM to adopt it in the coming quarters. Given this momentum and the cutting-edge value proposition, we believe the wireless platform will represent a large portion of our BMS revenue by the end of the decade. And looking ahead, we're broadening our EV capabilities beyond battery management and storage to power conversion solutions. Specifically, we're developing a silicon carbide-based smart switch for bidirectional onboard charging that significantly reduces charger size and weight by over 50%, thus driving down cost. Notably, this intelligent integrated switch enables the EV to transfer energy back into the network, creating a more reliable grid. And this innovation solution more than doubles our content opportunity per EV powertrain. So in summary, ADI is driven by a deep sense of purpose and a desire for our innovations to positively impact all stakeholders. We're immensely proud of the role our technologies play to improve the well-being of humanity and indeed the planet, and I remain very confident in our future. Our portfolio of cutting-edge technologies, world-class talent base are aligned with an unprecedented number of attractive secular trends, where the semiconductor content per dollar of CapEx is increasing tremendously. This presents ADI with continued profitable growth opportunities as well as the ability to shape the future of industries. And so with that, I'll hand it over to Prashanth. Prashanth Mahendra-Rajah: Thank you, Vince. Let me add my welcome to our third quarter earnings call. My comments today, with the exception of revenue will be on an adjusted basis, which excludes special items outlined in today's press release. While demand continued to soften throughout the quarter, ADI delivered nearly $3.1 billion revenue, in line with our guidance. This was driven by continued year-over-year growth for both Industrial and Automotive. Looking at our performance by end market. Industrial, which represented 53% of revenue, finished down 7% sequentially after a tremendous stretch of 13 straight quarters of sequential growth. On a year-over-year basis, revenue increased 4% with most applications up, led by sustainable energy as well as aerospace and defense, which each grew double digits. Automotive, which represented 24% of revenue, was down modestly sequentially in line with our expectations. Year-over-year growth of 15% was broad-based. We saw continued outsized growth for ADI's leading battery management and in-cabin connectivity solutions, which collectively increased nearly 30% year-over-year. Communications, which represented 12% of revenue, decreased double digits, both sequentially and year-over-year due to the broad-based inventory correction we flagged previously. And lastly, consumer, which represented 10% of revenue came in stronger than expected, finishing up 15% sequentially, but down 21% year-over-year. We remain optimistic that our second quarter marked the bottom for this business despite the ongoing inventory correction. And now on to the rest of the P&L. Gross margin of 72.2% remains industry-leading, but declined sequentially due to lower utilization and product mix. Operating expenses of $752 million were roughly flat year-over-year and up sequentially. This quarter's OpEx reflects the full impact of annual merit increases. Operating margin of 47.8% contracted 230 basis points year-over-year, roughly in line with the gross margin decline. Non-op expenses were $57 million, and our tax rate was 11.2%. All told, EPS came in at $2.49 within our guidance range. Moving to the balance sheet. We ended the quarter with over $1.1 billion of cash and a net leverage ratio of 0.8. Given the revenue pressures and our decision to hold more finished goods versus restocking the channel, inventory dollars increased and the days of inventory moved higher to 179. As a result, channel inventory remains below our target level and slightly declined. Specifically, we strategically undershipped Asia, especially China, due to weaker demand trends. CapEx was $325 million for the quarter as we invest to enhance ADI's global resiliency and offer our customers options on where their products are sourced. 2023 should represent the high watermark for CapEx, and we expect it to decline in 2024. Importantly, our investments do not include the benefits of tax credit and grant funds that we anticipate from both the U.S. and the European Chips Act. Over the trailing 12 months, we've generated $3.7 billion of free cash flow or 29% of revenue. And over the same period, we've returned nearly $5 billion to shareholders or over 130% of free cash flow via more than $3.3 billion in buybacks and more than $1.6 billion in dividends. Now turning to the Q4 guidance. We expect the fourth quarter revenue to be $2.7 billion, plus or minus $100 million. This outlook assumes sell-in to be below sell-through. At the midpoint of our outlook, we expect all markets to be down sequentially given the broad-based inventory correction. On a relative basis, Auto and Consumer should perform a bit better than Industrial and Comms. Operating margin is expected to be 44% plus or minus 70 basis points. This margin outlook embeds planned utilization reductions and a decline in OpEx. Our tax rate is expected to be between 11% and 13%. And based on these inputs, adjusted EPS is expected to be $2 plus or minus $0.10. As our outlook is lower than expected, let me provide some context on what we're experiencing and how we will navigate. Our revenue outlook reflects the broad-based macro softness across all end markets, all geographies and customers both large and small. We are also strategically improving lead times to get a better view into demand and enhance customer satisfaction. Today, we're shipping over 85% of our products within 13 weeks, and this is up from 35% a year ago. As Vince mentioned, we are seeing customers accelerate inventory adjustments due to both the softer environment and our lead time improvements. And as such, we're taking measures to preserve the integrity of our balance sheet, cash flow and income statement. This includes further reducing utilization and lowering external wafer purchases with a goal to decrease inventory meaningfully in the coming quarters. And importantly, as we've outlined before, we expect gross margins will maintain a 70% level on a trailing 12-month basis. This gross margin resiliency is a testament to the flexibility of our hybrid manufacturing model and our unique swing capacity capability. In addition to the naturally lower variable comp, we're also taking steps to reduce total OpEx by roughly $50 million sequentially. So stepping back, we're not ready to call the bottom yet but our history shows that we cycle up quickly. And when we do, we will achieve higher highs. ADI has built a very resilient business, rich with opportunities. Our diversification and exposure to numerous secular trends drives our durable earnings stream and solid free cash flow, enabling us to consistently return capital to shareholders. And to that end, over the trailing 12 months, we've returned $5 billion to shareholders or more than 5% of our market cap. As this is my last ADI earnings call, I'd like to give a quick thank you to Vince for his mentorship and counsel over the past six years to the ADI Board, including our audit chair, Karen Golz, for their unwavering support and most importantly, to the world-class finance staff, including young Mike here for always reminding us of our commitments to you, the company's owners. I look forward to seeing many of you in the coming weeks as we get on the road. Mike, let's go to Q&A. Michael Lucarelli: Thanks, Prashanth. I don't think I've been called young in some time, but I appreciate that. Now let's get to our Q&A session. [Operator Instructions] With that, can be our first question, please. Operator: Thank you. [Operator Instructions] Our first question comes from Tore Svanberg with Stifel. Your line is open. Tore Svanberg: Yes. Thank you. I have a question for Vince. So I know you're not ready to call a bottom. But some industry observers would say that this sort of inventory build started maybe late 2021, early 2022 based on your guidance for the October quarter, you're sort of back to that level. So then you've seen these cycles, you've seen many of them. They're all different. But just wanted to get a sense for you what you think we're getting close, especially given what I just said about that inventory adjustment now sort of being complete? Vincent Roche: Yes. Thanks, Tore. When I look at this current cycle, the symptoms are always the same in these cycles, but the causes tend to have different components. And I think right now, there are two kind of inputs to this particular correction. I think one is the inventory in digestion that exists out there that has been building for 18, 24 months now. And the second, of course, is the macroeconomic situation, which is a major governor as well. But I think if you look at what we understand from the direct side of our business, for example, when we look at our largest customers revenue growth and their forecast compared to our growth at these very same customers, we believe that we've been shipping the low-end consumption in the third and will in the fourth quarter. So I think one way to look at this is how long will the inventory correction take? My sense is it will be two to three quarters before we get through the inventory digestion cycle, and I think we're positioned as a company to get beyond it quite fast because we've been managing our factories very carefully, managing our inventories, both on our own balance sheet as well as our distribution channel. So we've also, I think, taken a long-term view to the demand patterns of our customers. We haven't, in any way, forced them into, for example, long-term supply agreements, essentially, at this point in the cycle, that will be forcing them to take products that they don't really need. We've been managing our channel aggressively. So as I said, we're keeping more inventory on our own balance sheet. So again, we will get to distribute the supply ultimately where we think it's needed when the recovery gets underway here. So that's my sense, sorry. I mean, in the industry, if you look back to the dot com cycle, you look at the 2008 financial crisis cycle, most of the downturns tended to last three to four quarters. So my sense is over the next two, three quarters, we begin to see a recovery here, at least on the inventory side. And then it's really a question of how does the macro-economy perform? Tore Svanberg: Great perspective. Thank you. Michael Lucarelli: Thanks Tori. Next question, please. Operator: Thank you. Our next question comes from Vivek Arya with Bank of America Securities. Your line is open. Vivek Arya: Thanks Dan. Best wishes again to Prashanth on his next adventure. You said that you're not ready to call the bottom yet and Vince, you mentioned that the inventory digestion period could last for some more time. How should we think about Q1 seasonality? It tends to be down kind of mid-single digit. Do you think we should be prepared for something different than that? Right? And if it is worse than kind of mid-single digit, do you still think that ADI can maintain gross margins above 70%. So just kind of puts and takes to help us align our models would be very useful. Prashanth Mahendra-Rajah: Why don't I take that, Vivek. So first, quick comments just to make sure everyone has the Q4 guide, correct. So on the channel, as I said in the prepared remarks, we are shipping in below the forecast we have from our channel partners. So we are intentionally bringing channel inventories down to help set us up for some better strength. The -- included in the guide is the backlog coverage has some turns, but less than normal given the higher level of uncertainty. So we would need some more turns and positive book-to-bill, which Vince mentioned is likely to be a quarter or two out. And then just from an end market standpoint, we've got all end markets down quarter-over-quarter. So as you know, we don't guide out further than the current quarter, but some color is I think you essentially have it right. There's no reason to think that first quarter would not be down seasonal on a, which would call it, mid-single digit quarter-over-quarter. But that we -- our view is going to be driven by the holidays and the customer decisions to reduce inventory as they go into the year-end. So we're not, at this point, seeing a more meaningful step down in Q1 based on what we can know today. And I will just remember to plant and everyone as you start to model out Q1 that every once in a couple of years, we have a 14-week quarter, and that will be Q1 of '24. And then on gross margins, I think we're actually quite proud of our gross margin story here that we've been -- we've messaged a number of times that we would have the ability to maintain a 70% gross margin in a -- on a trailing 12-month basis with a peak to trough decline of 15%. Q4 is down about 17% from the Q2 peak. And while we didn't give you a gross margin number, if you impute it from the OpEx math that I gave you, you'll see that we are able to hold that north of 70%, and we'll continue to work that. For Q1, gross margins, my best sense now would be that we are likely to face a little more challenge on the utilization level as we bring inventory levels down, but we have been very successful in activating our swing capacity. We're actually doing about 10% better on utilizations because we have swing than if we hadn't activated it. So it's been a very powerful lever for us. And we need to see how the math on all of that works out for Q1, but I wouldn't expect Q1 to be notably different from kind of where we are for Q4. Vincent Roche: Yes. I'd like to add one other comment, Vivek, to what Prashanth has said. So the other side of margin is pricing, and pricing is very stable. It's very, very stable, resilient. I don't expect that to change. And our products are very, very sticky. We've got tremendous life cycles and that part of our business, this is really a unit correction in the business rather than price or share. Vivek Arya: Thanks for that. Helpful. Operator: Thank you. Our next question comes from Ambrish Srivastava with BMO. Your line is open. Ambrish Srivastava: Hi. Thank you very much. This is old Ambrish, Young Mike, can feel free to chime in. I was looking at the year-over-year comms, and I look at TI as your closest peer rival competitor. Vince, they started going into a year-over-year decline in 4Q '22 and you are just starting, and you said two to three quarters. So in the past history does suggest that usually on a year-over-year basis, we see roughly around four to five quarters of year decline. Is that the right way to think about your business? You said two to three quarters of digestion and I'm assuming that means year-over-year decline in reps, right? Vincent Roche: Yes. Good question, Ambrish. So yes, look, I mean, Comms is just a piece of ADI's overall story. We've actually seen -- I mean, we have two components as well. We've got wire line, we have wireless. I would say on the wire line side of things, we've seen the malaise going back into the late part of '22, early part of '23. So that's really things like optical control for data center and carrier networks, and power. We've got a power business there as well. So we think we'll see that, we expect to see CapEx somewhat recover in that space to be able to catch up with the needs, for example, driven by the explosion in computing power that's required to handle the AI inflection here, for example. So -- my sense is the wire line part will probably start its recovery in the first -- second quarter of the year. Wireless is a little harder to call. It's very, very dynamic. We all know that. The developed countries, particularly North America, 5G deployments, which have really been focused on coverage rather than capacity. They're going to be weaker than we thought. So that's probably going to give us headwinds for how long, we don't know, but I think it could be several quarters during our FY '24. India has been very strong this year, of course. And I think we're expecting to see more commitments to lay in both coverage and capacity in India during our FY '24. So look, we've got leadership in many of these areas, like optical control systems, 5G, software-defined solutions. It's really a question of timing in my mind. But -- there's a lot of uncertainty in the communications market in totality and particularly in wireless at this point. So hopefully, that gives you the answer to your question. Ambrish Srivastava: Well, I was asking about the overall business, Vince, not just about the Comms, sorry. Vincent Roche: Okay. yes. Look, I think, Ambrish, the overall business. We see some trends, for example, that will transcend the inventory digestion problem. And even the macro-economy areas like digital healthcare, like aerospace and defense, the sustainable energy theme that we spoke to a little while ago. So again, I will just reiterate my sense is the inventory digestion problem will last probably two, three quarters, and then we'll get back into a unit volume increase from there on. Ambrish Srivastava: Thank you. Vincent Roche: Thanks Ambrish. Operator: Thank you. Our next question comes from Stacy Rasgon with Bernstein. Your line is open. Stacy Rasgon: Hi, guys, thanks so much for taking my question. Prashanth, I don't want to be pedantic on Q1, but I know you said right now, down seasonal, but also as an extra week. That extra week, if I just linearize it is like a plus 7. So do those cancel out? Or is it like it's the week between Christmas and New Year, so it's not a lot of revenue? Or just how do I think about the balance of those two things into Q1, assuming a Q1 that was... Prashanth Mahendra-Rajah: So when I gave you my comments of down seasonal that was on a 13-week basis, the 14-week was just a reminder as you model it. So Mike, do you want to do the math, but I think you're essentially thinking about it right. Michael Lucarelli: Yes. So as Prashanth said, let's take a first 13-week quarter. What happens normally in 1Q and a 13-week quarter our business is down, call it, 5%, plus or minus, total business. Now with an extra week, that adds about 7.5%, both on the revenue side and the OpEx side. So there's two pieces, normal, down 5% total company, in the 14-week quarter, you can add 7.5% of revenue and OpEx. That's the best way to think about it. Prashanth Mahendra-Rajah: And thank you for clarifying that, Stacy, I wasn't clear in my answer. Stacy Rasgon: Okay. And then that would drop off into Q2, though, you go the other way in Q2. So Q2 under like normal circumstances would be worse than seasonal because you have that extra week drop off? Michael Lucarelli: Yes. So again, you can parse it in normal times, 2Q is up, call it, 2% to 5% and a 13-week to 13-week quarter, if you take away an extra week, yes, you have a 7.5% headwind. They have got 1Q. Stacy Rasgon: Got it. Okay. That's helpful. I have another one, but I guess I don't want to get that band next time, so I.... Michael Lucarelli: I'll allow another question because that's a good clarifying question, Stacy. Stacy Rasgon: Okay. I just wanted to ask about OpEx into next year. So it sounds like you're guiding it to about $700 million in the Q4. How do I think about it next year into a revenue year that's likely to be down potentially reasonably materially. Like how should we think about OpEx just year-over-year for fiscal '24 versus '23? Prashanth Mahendra-Rajah: Yes. I think, Stacy, as we've always said, we run this business for the long term. So we're going to make the adjustments that are prudent to make on the discretionary side, adjusting the variable comp and where we can, but the value of this company comes from its innovation. So I wouldn't expect meaningfully more attack on the spending into 2024. But remember that our variable comp is designed to be highly accordion. So if '24 plays out as a down year, you will see that meaningfully unwind for us. Anything else... Stacy Rasgon: Is that $700 million runway Mike, is that like the right run rate to think about? Michael Lucarelli: That's not a crazy level to think about for the year. I think if you take a step back and look at kind of what we're trying to manage within our control. We talked about gross margin maintaining at 70% a trailing 12-month basis. So for the full year, I think we can do 70% gross margins, and our goal is to maintain our operating margins within our long-term target and the low end of that account 42% to 45%. So that's kind of some guardrails we think about as you're modeling out next year and what would be a down year for revenue. Stacy Rasgon: Got it. Thank you, guys. Michael Lucarelli: Thanks Stacy. Prashanth Mahendra-Rajah: Thank you. Operator: Thank you. Our next question comes from Chris Danely with Citi. Your line is open. Chris Danely: Hi. Thanks guys. Congrats Prashanth on retirement. I wish I was joining you. I just had a question on the Auto end market. So you're saying that you expect it to do, I guess, better relatively than Industrial. Given how much inventory has been built there, and the upcoming UAW strike, do you think it's possible that Auto could get materially worse? Are you baking that into any kind of forecast? And then are you I guess, Auto supply chain customers talking about a potential strike and the impact on their inventory. Prashanth Mahendra-Rajah: Yes. All right. So thank you for the question. Chris, I think we're going to see you in a couple of weeks in New York. So on Auto, I guess some context first, we've grown for 12 consecutive quarters year-over-year. And including the fourth quarter, we're going to be up again. We said in the prepared comments that the lead times and the confidence supply is driving some of that acceleration in inventory adjustments and that's happening across all our markets. When we look specifically at Auto in the quarter and our growth rates there, the same strong growers, BMS, GMSL, A2B. They grew in the third quarter and both on a sequential basis and year-over-year. We expect kind of the similar strength from them into the fourth quarter. So I think that our outlook is, as Vince said, is really end market units driven and we have not yet put in a number nor have we received indicators from our supply chain partners that we should be making adjustments based on any disruption that could come from the negotiations that are going on right now. Vincent Roche: Yes. I think one other thing, Chris, to note is that, in general, there's more and more silicon value in cars every year, and that's true of ADI. We've got the switch to the electrification, which is, again, in pretty much the early stages of adoption. So there are some great growth drivers that will somewhat transcend the malaise, the economic malaise. But we still expect, overall, as Prashanth said, we've got many growth drivers that Automotive will continue to be the one of the better growth areas for ADI for the foreseeable future. Chris Danely: Great. Thanks, guys. Vincent Roche: Thanks, Chris. Operator: Thank you. Our next question comes from Harlan Sur with JPMorgan. Your line is open. Harlan Sur: Hi. Good morning. Sorry about that. So in Q3, disti was down, was about 62% of sales. It was down about 4.5% sequentially. So that's less than the total business. Shipments to our direct customers came down around 8%. So maybe you guys can just discuss the shipments and excess inventory dynamics around both for Q3 and here in Q4. Is the excess inventory situation a little bit more pronounced than direct customers? And maybe similar to your disti customers where you have systems in place to monitor sell-through? Like how do you monitor the levels of sell-through and inventories at your direct customers? Prashanth Mahendra-Rajah: Yes. Great. Okay. So let's do a couple of pieces on that. First, as a reminder, for a distribution company to do business with ADI, you have to give us your sell-through data on a weekly basis in arrears via electronic data feed. So we know exactly where our distribution guys are doing business, and we use that to run the company, as Vince always said, we run it on a POS basis. We said in the third sorry, in the second quarter earnings call, we said that we had gotten a little ahead of ourselves in China and that we intended to undership China. In the third quarter, we have done that. We are now intending to undership all markets generally in the fourth quarter to continue to bring the channel level inventories down. We have limited direct data visibility into our end customers inventory levels, except for those customers where we have consignment. But what we do have is the which you don't have access to is we can see the sales data of our products into our broad set of publicly external customers and their corresponding revenue growth. And our team builds correlation data based on that to tell us how we're doing versus how their growth is. And that's what Vince was referring to that we have seen that their growth is accelerating versus our growth to them, which is why we have confidence that we are undershipping their end market demand, allowing them to pull inventory levels down, which, of course, it is safe to do so because now we can get our products to them within 13 weeks. Michael Lucarelli: Yes. Prashanth that's a great point you made the less lead times is the best indicator of what our customers' inventory levels need to be. if a customer can get product quick, they need to hold a little less inventory. So our lead time is improving is helping us give us better visibility into what the customers need to hold and what they're holding. Vincent Roche: Yes. I think Prashanth said earlier, 85% of our total portfolio now is available in less than 13 weeks. Big, big change since this time last year. Michael Lucarelli: Thank you, Harlan. Harlan Sur: Thank you. Operator: Thank you. Our next question comes from Toshiya Hari with Goldman Sachs. Your line is open. Toshiya Hari: Hi, good morning. Thank you for taking the question. I had two quick ones, if I may. One on pricing. Vince, you mentioned that in the near term, it's more of a unit correction as opposed to a correction in pricing, which makes sense. To the extent foundry pricing improves into 2024, would you be in a position to share that sort of cost down, if you will, with customers the same way you've sort of passed on higher costs over the past couple of years? And then a second quick one for Prashanth. DOI 179, I think that's up, call it, 50, 60 days vis-a-vis pre-pandemic. How should we think about the new normal going forward? And how quickly can you get there? Vincent Roche: Sure. Let me answer the pricing piece first, Toshiya. There are really two parts to it. One is we have 75,000 product SKUs that are established and are the bedrock of the franchise of the ADI. They're very sticky. The product life cycles tend to be very, very strong. And they tend to be once they're designed and fairly price insensitive. And we're actually -- we're also, by the way, increasing the value of our products each year. We're managing the portfolio in terms of pricing. We're looking for elasticity, which is just a normal part of portfolio management. But -- we're also adding more value to the products that we're introducing to customers, the new products. I think the benefit of lower costs will come at the design-in phase if we do get lower cost, which from our third-party which, by the way, I think, is very, very unlikely. So I think the message is pricing is stable and very, very franchise is very durable. Prashanth Mahendra-Rajah: And I'll do the DOI one very quickly here, Toshi. So 179 days, balance sheet inventory grew call it, low single digits sequentially on a dollar basis. We have high confidence that we will exit Q1, taking out at least $100 million of inventory value. and the production plans are being oriented to allow us to do that. The days target, we have a model, but we've agreed that it is appropriate for the next CFO really to bless that model because they're going to own that and they need to kind of go through that map. So I can tell you that it's not going to be at 180 days, but I don't think we get back to 120 days. So we'll come back to you at some point on what that looks like. Toshiya Hari: That's very helpful. Thank you, both. Prashanth Mahendra-Rajah: Thanks Toshi. Take last question, please. Operator: Thank you. Our last question comes from Josh Buchalter with TD Cowen. Your line is open. Josh Buchalter: Hi, guys, thanks for squeezing me in. And Prashanth, congratulations on the great run. You mentioned a few times under shipping in the print and the guidance. I was hoping you could maybe quantify the extent or maybe provide any sort of guidance to the amount that you're under shipping? And then given it sounds like seasonal fiscal first quarter isn't off the table. Does that mean we kind of expect you could be shipping to end demand exiting the October quarter? Thank you. Prashanth Mahendra-Rajah: I'll let Mike take the second part of that question because I'm not sure I fully comprehended it. But on the first one, so we have our business that goes through the channel and the business that goes direct. Business through the channel, we have the demand forecast from our distribution guys, and we are under shipping into the channel to help them pull inventory levels in the channel down. We said that in the second quarter earnings call that we were going to do that for China. This quarter, we're going to do it across the globe for all distis. Your second question on how to think about the under shipment into end demand that Vince referenced to. All I can really do is refer back to sort of the data analysis that we do. There's not a real way to aggregate that, except to say that we have a relatively good correlation between our end customers revenue growth and our growth to those end customers on an individual basis and when we look at how they grew in third quarter versus our shipments to them and how they're forecasting or you guys or consensus forecasting their fourth quarter growth versus our shipments to them, we know that we're going to be helping them to pull inventory levels down, which again makes tremendous sense because lead times have improved. And Mike, I didn't... Michael Lucarelli: Sure. On the first -- it's good question. If you look at the first quarter, we always typically undership consumption in the first quarter, why? You see a lot of our customers reduce their working capital going into end of the year-end. So the down 5% in our -- seeing the seasonal first quarter is below consumption. I think after that, you get back to kind of what Vince was saying you get coming back to demand and consumption, all kind of imbalance. And then it comes to a question of macro, what's happening in macro in our second quarter. Thank you, Josh. Josh Buchalter: Okay. Definitely helpful. Thank you. Michael Lucarelli: Any time. Thanks, everyone, for joining us this morning. We once again will be on the road a lot this quarter. You'll find us in New York, Chicago, Florida, London and San Fran. Reach out to IR team to be notified when we are in your ZIP code. And with that, thanks for joining us and the interest in ADI. Operator: This concludes today's Analog Devices conference call. You may now disconnect.

Operator: Good morning, and welcome to the Analog Devices Second Quarter Fiscal Year 2023 Earnings Conference Call, which is being audio webcast via telephone and over the web. I'd like to now introduce your host for today's call, Mr. Michael Lucarelli, Vice President of Investor Relations and FP&A. Sir, the floor is yours. Michael Lucarelli: Thank you, Liz, and good morning, everybody. Thanks for joining our second quarter fiscal '23 conference call. With me on the call today are ADI's CEO and Chair, Vincent Roche; and ADI's CFO, Prashanth Mahendra-Rajah. For anyone who missed the release, you can find it and relating financial statements and schedules at investor.analog.com. On to the disclosures, the information we're about to discuss includes forward-looking statements, which are subject to certain risks and uncertainties as further described in our earnings release and other periodic reports and other materials filed with the SEC. Actual results could differ materially from these forward-looking statements, and these statements reflect our expectations only as the date of this call. We undertake no obligation to update these statements except as required by law. Our commentary will also include non-GAAP financial measures, which exclude special items. We're comparing our results to our historical performance, special items are also excluded from prior periods. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures and additional information about our non-GAAP measures are included in today's earnings release. And with that, I'll turn it over to ADI's CEO and Chair, Vince. Vincent Roche: Thanks, Mike, and good morning to you all. Well, I'm very pleased to share that ADI continued to execute well in the second quarter. We delivered our 13th consecutive quarter of revenue growth and record earnings per share. Notably, revenue was $3.26 billion, growing 10% year-over-year. And once again, this was driven by record results in our industrial and automotive sectors. Gross margin was nearly 74% and operating margin surpassed 51%, reflecting the innovation premium our portfolio commands and our strong financial discipline and EPS increased an impressive 18% year-over-year. Now I'd like to spend a moment on the current business conditions. We previously shared that our business was at an inflection point due to uncertain economic and the geopolitical backdrop. After three years of steady growth, customers are beginning to adjust their forecasts and rebalance their inventories. This is most pronounced in Asia, while North-America and Europe demand is moderating, but at a more measured pace. We expect this normalization of revenue will persist through the second half of 2023. Importantly, given our customer conversations and proactive decisions to improve lead times and right-size our backlog, we're in a position to deliver on our goal of delivering a soft lending. Stepping back, we've successfully navigated macro challenges many, many times before. Today, ADI has an even more durable franchise, defined by an unmatched diversity of products, customers and applications. A hybrid manufacturing model that better adapts to demand fluctuations, and of course, a fortified balance sheet. These characteristics instill a resiliency, that helps ADIs mitigate market weakness, and invest through economic cycles in critical areas that will define our future. Notably, unlike previous economic cycles, we have numerous concurrent secular growth drivers across all of our markets that drive more semi-content per dollar of CapEx. And we have exposure to sectors that will transcend the macro uncertainty, including areas like digital healthcare, aerospace, defense and the electrification ecosystem. So to that end, I want to highlight our digital healthcare business, which resides in our industrial end market. Healthcare is a market that is ripe for renovation and it's one that requires the highest levels of performance. Now currently, the United States leads the world in healthcare spending with more than $4 trillion spent in 2022 alone, approaching 20% of GDP. This amount has steadily increased over several decades, and unfortunately does not correlates to world’s leading health outcomes. Both the U.S. along with most international healthcare systems are still reliant on serving the majority of patients with critical or chronic conditions in large, centralized, acute-care hospitals, where specialized expertise and equipment resides. The pandemic highlighted the fragility of the system, underscoring the urgent need for remote physician consultation and distributed clinical grade patient care. This vision of a decentralized system to improve the accessibility, affordability and efficacy of global healthcare can only be realized through the proliferation of edge-based diagnostic and therapeutic technologies. ADI saw this promising opportunity early and made digital healthcare a strategic focus area over a decade ago. Over that time our R&D investments have expanded our portfolio from core signal processing, sensing and power technologies to more highly integrated application specific products to now full system level solutions. The result, our healthcare franchise has delivered seven straight record revenue years, generating $900 million annually and we're on track to achieve a new high watermark in '23 despite the macro backdrop. Importantly ADI has become an industry leader in three primary areas. The first is medical imaging, where our highly integrated products performed critical functions. This includes enhancing image quality, minimizing radiation dosage, improving system assembly, and simplifying field maintenance. Today, we've strong share positions in areas like CT scanners, digital X-ray and ultrasound. Next is automation and instrumentation. For example, our broad portfolio enables us to create the optimized signal chains required in applications such as infusion pumps, ventilators and defibrillators. Third is personal health monitoring. Here, our highest performance products are used throughout the operating room and the ICU, while more compact versions with lower power are designed into wearable devices performing both clinical and consumer wellness monitoring functions. Now let me share some of the examples of how we're seeing ADI's solutions shape the future of healthcare. The ultrasound industry is migrating from large cart based equipment to more compact mobile systems. Recently, ADI won the design as a market leader for their compact ultrasound system. Our solution leverages our complete portfolio including high speed signal chain and high voltage power technologies, to deliver the highest quality images at the lowest power in a smaller footprint. We're also developing an echo to bits technology to untether the ultrasound modality from the hospital and enable hospital grade care in even the most remote locations. Our solution uses proprietary ultra-low power analog technology that performs both the data acquisition and beamforming functions at extremely low power levels with embedded software algorithms. This allows the user to get cart based performance in a handheld form, without compromising image quality, resolution, or functionality. Now turning for a moment to robotic surgery. Currently, only about 15% of the world's surgical procedures use robotic technology despite the many benefits. These include greater precision, flexibility, and control during surgery and shorter hospital stays, fewer complications, and lower levels of pain for patients. We already designed in, at the largest robotic surgical suppliers with our suite of precision motor control, signal processing, power management and sensing solutions. And with content per system in the thousands of dollars and performance demands increasing exponentially, this application is poised to deliver significant growth in the years ahead. In the area of personal health monitoring, clinical grade vital signs monitors are converging with consumer wellness wearables. Now this is an emerging market for our comprehensive suite of technologies, including our sensor AFEs, microcontrollers and ultra-low power technologies, which has been strengthened by the integration of Maxim. For example, in diabetes management, ADI has long been a leading supplier of blood glucose monitoring technology. Now we're working with key customers in the next-generation of continuous glucose monitoring. Our solution increases the level of robustness, accuracy and power efficiency of the glucose sensor, thereby extending its life from days to weeks. And there is much, much more to come. We are extending our reach into innovative medical products that connect our hardware with cloud-based connectivity analytics and service. I'm delighted to share with you that our first non-invasive chronic disease management device is undergoing marketing clearance with the FDA and I look-forward to sharing more as this new market has the potential to significantly expand our healthcare segment (ph). So big picture, we're shaping the digital revolution in healthcare. ADI's ability to go from component to system supplier underscores our deep domain expertise and unrelenting focus on innovation. Setting us apart from the pack, not only in healthcare, but in all of our markets. So while there is near-term uncertainty, we are excited about the long-term opportunities that lie ahead. The center of gravity for data processing is shifting from the cloud to the edge. And ADI where data is born is at the center of this evolution, enabling the next waves of innovation for our customers. Now before I hand over to Prashanth, I want to address our announcement that he will be leaving ADI at the end of the fiscal year. I want to recognize, Prashanth for his many contributions and for his partnership over these past six years. He has played an important role during a period of extraordinary growth and value creation for ADI, including help build a robust finance function and fostering strong investor community engagement. Please know that Prashanth will be remaining in his full capacity and continuing to engage with all of you while we identify our next CFO through a search process that is now underway. And with that, I'll hand it over to Prashanth. Prashanth Mahendra-Rajah: Thank you, Vince. It has been an honor to serve as the CFO of this phenomenal company and lead this world-class finance organization. As Vince mentioned, I'm fully committed to ensuring a smooth transition and I look forward to engaging with all of you during the coming quarters. I do want to express my deep appreciation to Vince, both as a coach and a mentor, but also for introducing me to this magical world of semiconductors. As my boss often says, we truly are the bedrock upon which the global technology industry is built. Now turning to our second quarter results. As usual, my comments today with the exception of revenue will be on an adjusted basis, which exclude special items outlined in today's press release. We delivered another very strong quarter, record revenue of $3.26 billion exceeded the midpoint of guidance and represented ADI's 13th consecutive quarter of sequential growth. On a year-over-year basis, we grew 10%, led once again by all-time highs in industrial and automotive. Breaking it down by market, industrial, our most diverse and profitable business represented 53% of revenue and finished up 3% sequentially. Year-over-year growth of 16% was broad-based, notable gains in sustainable energy, aerospace and defense. These markets in addition to healthcare, which Vince just highlighted are much better positioned to withstand cyclical slowdown and together they represent roughly 40% of industrial revenue. Automotive, which represented 24% of revenue, once again exhibited broad based strength, growing 10% sequentially and 24% year-over-year. Secular tailwinds fueling content growth continue to drive ADI's leading battery management and in-cabin connectivity solutions, which combined increased nearly 40% year-over-year. Communications, which represented 14% of revenue, decreased both sequentially and year-over-year, due to the ongoing inventory corrections across this end market. And lastly, consumer at 9% of revenue was down more than 20% sequentially and year-over-year, after several quarters of softness, consumer revenue is close to its COVID low, suggesting that the correction is nearly complete. Moving on to the P&L. Gross margin of 73.7% was up slightly sequentially due to favorable product mix. OpEx at $733 million was in line with last quarter and op margins of 51.2%, up roughly 100 basis points year-over-year set a new record. Non-OP expenses were $48 million and our tax rate was 11.4%. Remember that Q2 is typically our lowest rate. All told, EPS came in at $2.83, up an impressive 18% year-over-year. Moving to the balance sheet, we ended the quarter with approximately $1.2 billion of cash and a net leverage ratio of 0.8. We've discussed many times our decision to hold more finished goods inventory versus restocking the channel. Thus, our days of inventory increased to 168, and channel inventory weeks were basically unchanged. As we outlined a quarter ago, we expect inventory dollars will decline in the second half as we balance the replenishment of die bank and moderate external purchases. Moving to cash flow. CapEx was $284 million in the quarter and $930 million over the trailing 12 months, representing 7% of revenue. As a reminder, we outlined at our Investor Day that we expect CapEx to be high-single digits as a percentage of sales in 2023 and then declined in subsequent years to our longer-term target of mid-single digits. These investments will support our long-term growth plans and enable strategic swing capacity between our fabs and our foundry partners. The flexibility of our hybrid model across different geographies, enhances our resiliency. It offers our customers additional optionality and it provides an important financial shock absorber during times of volatility. Of note, our CapEx spend to-date does not include the benefits of both the U.S. and the European tax credits and grant funds that we anticipate from both the U.S. and European CHIPS Acts. Over the trailing 12 months, we generated $4 billion of free cash flow or 31% of revenue. We've returned $5.1 billion to shareholders, $3.5 billion in buybacks and $1.6 billion via dividends. We remain committed to our shareholder friendly policy of returning 100% free cash flow over the long term. Now before moving to the outlook, I do want to provide some additional details on the evolving business conditions. As Vince shared in his remarks, customers are adjusting forecasts and rebalancing inventory. At the same time, our lead times continue to improve with over 70% of our portfolio now shipping in under 13 weeks. This gives customers high confidence into the timeliness of our supply. The result book-to-bill as we outlined last quarter remains below parity in all markets and our backlog due in the current quarter has returned to its typical coverage range. As a result, total backlog continues to decline, but just under a year of revenue, it's still 2x regular levels. And lastly, after a strong start to the second quarter, demand quickly deteriorated in Asia, impacting channel sell-through. As a result, we plan to reduce channel inventory in this region. And in the third quarter, we are planning for sell-in to be below sell-through for the total company. Given these dynamics, we are guiding third quarter revenue to be $3.1 billion, plus or minus $100 million. At the midpoint of our outlook, we expect industrial and auto to be down low to mid-single digit sequentially, communications down around 10% sequentially, while consumer will increase sequentially. Op margin is expected to be 48.5% plus or minus 70 bps. The decline in op margin relates to our annual merit increases, changing product mix and a reduction of manufacturing utilizations given the softer environment. Our tax rate again between 11% and 13%. And based on these inputs, adjusted EPS is expected to be $2.52 plus or minus $0.10. While the near-term operating environment is a difficult one, our diversification and exposure to key secular trends is expected to help mitigate the revenue impact. In addition, we have key levers to help us minimize margin volatility. This include our flexible hybrid manufacturing model, which allows us to quickly reduce spend on external wafers and moderate the impact on internal utilizations. Our variable compensation program, which has a true accordion like function, allowing us to reduce spend, while still investing in key long-term areas. As a result, we expect a durable earnings stream, and solid free cash flow generation, enabling us to take advantage of any share price dislocations. Before handing off to Mike, I want to remind folks that in June, we will be doing a deep dive on the burgeoning opportunity for ADI in the construction of gigafactories. And with that, let me pass it to Mike for Q&A. Michael Lucarelli: Thanks, Prashanth. I want to echo Vince's comments and thank you for the partnership over the past six years, but I will warn you, it's not done yet, we’ve couple of more earnings calls together. So with that, let's get to the Q&A session. We ask that you limit yourself to one question in order to allow for additional participants on the call this morning. If you have a follow-up question please requeue and we'll take your question if time allows. With that, can we have our first question please. Operator: [Operator Instructions] Our first question comes from Vivek Arya with Bank of America Securities. Vivek Arya: Thanks for the question and thanks and best wishes to Prashanth. So my question really is, I'm trying to understand where is the incremental weakness, is that limited to Asia and within Asia is that industrial or automotive or both? And what about non-Asia demand, how has that changed versus what you had thought three months ago? Prashanth Mahendra-Rajah: Yes. Thank you. Thank you, Vivek. It's been a pleasure to work with you, Vin, (ph) we still have a few quarters together. Everyone is focused on quarter-over-quarter, but I -- before I get to your answer, I do want to take a step back and look at the year-over-year because I do think that tells the story of share gains and the increasing content per dollar of CapEx, which is what we believe delivers that long-term shareholder value. If you look at our industrial and auto business, they are up year-over-year at the midpoint of guidance. Industrial call it roughly mid-single digit and auto mid-teens year-over-year. And this comes at a time when PMIs are below 50 and auto SAR is relatively modest. So while the economics and the cycle dictate the number of units our customer sell, which will impact our business, our share gains and our increasing content per dollar of CapEx is what we expect to help us outperform, which means we're going to decline less in bad times and accelerate good -- accelerate in good times. To your specific question, China definitely was, sort of the piece of new information that has developed over the year, over the more recent period. We are -- we have had three quarters of decline in China and we're expecting a fourth. We did see an uptick following kind of the resumption or the return to office after Chinese New Year, but that did fade quickly, and the result was we've got inventory a little higher in the channel there than we expected. Very confident that this is not a share issue. This is a reflection of what's going on in those markets. And it's broad-based across both the industrial and auto. Outside of China, I'd say that industrial and auto is holding up relatively well, especially North America, Europe and Japan. Not as strong as it was prior quarter, but it's not falling rapidly. And I would characterize it more as a measured slowdown. Comms and consumer, we've been talking about those in all those geographies, those remain weak. Vivek Arya: Thank you. Vincent Roche: Thanks, Vivek. Operator: Our next question comes from the line of Tore Svanberg with Stifel. Tore Svanberg: Yes. Thank you. Prashanth, it's been great working with you. Wish you all the best. I know we're together for a few more months, but anyway wish you all the best. My question is on utilization and inventory levels. So could you give us a sense for where utilization is today, what's your plan for the second half, you did talk about inventory in dollar terms coming down in the second half, but if you could give us any color on the extent of that would really appreciate it. Thank you. Prashanth Mahendra-Rajah: Yeah. Thank you. Thank you, Tore. It's been great working with you. So, as we think about inventory, inventory is going to remain higher than normal because we're keeping the channel lean. This is something we started two or three quarters ago. From a dollar basis, inventory has peaked in second quarter as I mentioned in my prepared remarks, and you should see dollar start to trend down from here, given the actions that we're taking, which is both reducing our external wafer builds, which is an opportunity that we have because of our swing capacity in our hybrid manufacturing model, and that also allows us to balance out the die bank building in our internal factories with softer demand and tap the brakes on internal (ph) utilizations. Utilizations, I would say, still are at elevated levels, so we expect them to start getting closer to what we would consider normal levels in the -- in our fiscal fourth quarter. Vincent Roche: Tore, to give you a little context, in the outlook we gave, it’s about (ph) 48.5% operating margins that assumes gross margins come down from where they are today. That's mix and also it is utilizations, Prashanth mentioned. And then, OpEx was up a little bit in the third quarter based on merit increase offset some by the variable compensation. So that's kind of the math around that. And then as you said, as you look out, utilizations probably don't go higher in 4Q after 3Q. Just kind of give you a feel for the back half of the year. Tore Svanberg: Great. Thank you. Vincent Roche: Thanks for the question. We'll go to next one. Operator: Our next question comes from the line of Ambrish Srivastava with BMO Capital Markets. Ambrish Srivastava: Hi. Vincent Roche: Hi, Ambrish. We hear you. Ambrish Srivastava: Hi, sorry. Sorry, I lost you for a sec. Thanks. Thank you, Prashanth, pleasure working with you as well. I just wanted to come back to the backlog. And you just went through this comment a little bit too quick for me. So the backlog as you said, 2x regular levels, but book-to-bill below and it is where the typical coverage ranges at this point. So I was really unsure what that means. More importantly book-to-bill should then be trending lower, as we go over the next couple of quarters, is that the right conclusion I should take away from those comments? Vincent Roche: What I would -- I guess, let me, let's do this in two pieces. First, let's talk about our view on this correction. Obviously no correction is the same. But if you look over at history, Ambrish, most of these sort of downturns last for somewhere between two to four quarters, and it's our view that, that we're going to have weakness for the second half. But a couple of points around that. First, we are really seeing this as a rolling correction across the market, because obviously no market is fully immune, but I do think that we're better-positioned. Comms and consumer, I think we -- you would agree with us, the worst is largely behind us with. We've seen those correct over the last couple of quarters and we're actually being a little bit more optimistic about consumer as we go forward. Industrial and auto, we're starting to see some softness, but that's probably not going to just last a quarter. It's important to point out that we do have some areas of strength in industrial. We mentioned that in the prepared remarks. And auto really is going to continue to be a function of the of the SAR activity. From a bookings and backlog standpoint, the takeaways you want is, bookings overall continue to decrease, but they're basically sitting at about a year of revenue, the total backlog. What that means is that the backlog for the current quarter is now to normal levels, which means that we're back to a point where we will be relying on some book and ship to hit the guide and that's back to normal pre-COVID levels, and on a book-to-bill were below parity, which we had said for a couple quarters now that this was coming and that's pretty broad-based to sort of all markets, industrial and auto are a little bit better, but all markets, all geographies, I did call out on -- in I think Tore's question that China is certainly the weakest of that. Ambrish Srivastava: Got it. Thank you. I'll queue back for another follow-up. Michael Lucarelli: Thank you, Ambrish. We'll go to next question. Operator: Our next question comes from the line of Joseph Moore with Morgan Stanley. Joseph Moore: Great. Hi. Let me add my congratulations to Prashanth. Can you talk about the backlog being out over a year, when 70% of lead times are below 13 weeks. How much -- I know you've been pretty aggressive scrubbing that backlog. How confident are you that, that reflects real demand? And then, can you sort of describe, it seems like you're still getting a pretty decent amount of bookings, considering that people have booked out 52 weeks and can get product within 13. Can you just -- are people still placing orders beyond lead time to try to assure continuity? Thank you. Prashanth Mahendra-Rajah: Yeah. Great question, Joe. Thank you. So first, yes, you're exactly right. When we talk about backlog being kind of roughly a year in value, that's phased over several quarters. So we have delivery dates from customers that are in future quarters, which sort of gives us confidence to what the future looks like. And now, we're sort of back to that stage that we've always operated in pre-COVID levels where there is a percentage of the current quarter's revenues that comes from turns business. So we're back to that state of normalcy, with the lead times down as they've improved with our manufacturing capacity additions. Now, there's no incentive for customers to keep giving us orders out with a significant advanced notice, they can get most of what they need pretty quickly. And that's the transition that you're seeing being reflected in the book-to-bill rate. But again, as I mentioned, we are expecting. And Vince has talked for a couple quarters now that, that we were expecting the macro impact to hit us, but we remain very confident that the content story we have is going to help mute the impact relative to others and given our end market exposure, as I mentioned, it's sort of going to be rolling through us. Consumer and comms are largely behind us, we will see auto pressure on units for a couple of quarters -- sorry, industrial pressure on units for a couple of quarters. And auto, we can't give you a good sense of, except to say we know we have a phenomenal content story growth there and it really will depend on consumer purchases. Vincent Roche: Yeah. I think, Joe, at the margins, I think our customers have changed their behavior. It used to be that the world expect to be able to operate on a very rapid turns cycle. Now I think that, that will persist, but what will also persist is the change in behavior around aligning long -- customers allowing their long-term or longer-term demands with supply. And those are conversations that we're having continuously. So I think the behavior has changed somewhat, and perhaps we've got a new normal. Michael Lucarelli: Thanks, Joe. We'll go to next question. Operator: Our next question comes from the line of Chris Danely with Citi. Chris Danely: Thanks, guys. I'll add my congrats to Prashanth. I wish I was retiring too. I just had a, I guess a question or some more color on the correction. What do you think triggered it? Do you think it was just a function of the shortages going away and people always had a little bit inventory out there. And now they can -- they can start to cancel orders and then how bad do you think it could get. I mean your auto businesses tripled and your industrial business has doubled in the last two years unchanged. So what should we think it for like the October quarter and beyond? Prashanth Mahendra-Rajah: Yeah. Chris, I don't know that I would call it a trigger per se. I think that -- as I mentioned, we've been sort of rolling through this. It is just that there has been enough growth in some parts of our market that have overshadowed the pressure we've seen on comms and consumer. Now industrial, which is really the flagship is starting to feel a little bit of the impact from the higher interest rate environment. So that's coming through. But again I would call out that we've got a pretty sizable portion of that industrial market that is very recession resistant, that's the healthcare business, which Vince talked about the aerospace and defense, as well as our energy business. I think what I mentioned I think to Ambrish's question is, the piece that perhaps with most surprising to us is, we were expecting a stronger bounce in China, as they reopened from COVID and they got on the other side of Chinese New Year, and that recovery has not happened. And again, as I mentioned, we know that it's not a share issue. It is macro issue to that market. And what was the -- what was the second part of your question? Chris Danely: Just how bad do you think it could get? Any color on October and beyond? Prashanth Mahendra-Rajah: I'm going to -- I'm going to turn to the 40-year veteran of this business, who has seen multiple cycles and let Vince take that. Vincent Roche: Yeah, Chris. I think first and foremost, what we're seeing now in our business is that the troughs are not as deep and the peaks are steeper than they used to be. There is more and more content in every one of the market segments that we participate in. So I think that's the way to look at the troughs are probably going to be -- they're probably going to be shallower. And also we've been very careful at managing our factories and making sure that we don't unnecessarily build inventory and ship product that perhaps isn't needed. So my sense is, we set ourselves for a softer landing just given how we've managed through the cycle and try to match demand of our customers as tightly as we can with the supply system. So, I think perhaps just given where PMIs are at, we would see at least a couple of quarters here of muted demand. And my sense is, when the central (ph) begins to turn, it will turn quickly. Prashanth Mahendra-Rajah: Yeah, Chris. I’ll add a little bit about -- unit demand for the couple of quarters here. It's good to think like, we've grown 13 quarters of relatively. I think investors and sell-side people forget that you do have down quarter sometimes. And we're kind of going back to, what I'll call a bit more normal and a more normal 4Q, you kind of -- you see industrial kind of flat to down from 3Q, orders about flat. Comms not much activity happening right now in that market and consumer usually up a little bit. And if you look at our 1Q, a normal 1Q for us, the B2B markets, which is industrial, auto, and comms are down, kind of low mid-single digits and consumer is down a bit more due to holiday builds. And then you get a 2Q pickup. Now that's not an outlook. That's kind of what the normal shape was pre-COVID. Vincent Roche: Yeah. I can tell you as well, Chris, from conversations with our industrial and automotive customers, their sentiment is quite strong. I met the CEO of one of the largest industrial automation companies, very, very recently. And they see tremendous secular growth drivers. There is a rebound in demand from the pandemic stage, where a lot of factory, the CapEx to improve factories, efficiencies and so on was not spent, so that continues. The whole sustainability challenge is on everybody's mind. So there are many reasons to believe that we're going through a short-term period here of reconciliation, normalization of demand and supply, but my sense is, things will recover in the industrial market pretty rapidly. And in automotive, it's a case of, we're getting more and more share in the areas that count with our connectivity products, the electric vehicle portfolio that we've got. And there still reasonable demand, I would say, for mid to high end automobiles. So, we see this as a relatively short-term reset. Chris Danely: Thanks, guys. Thanks for the color. Operator: Our next question comes from the line of Ross Seymore with Deutsche Bank. Ross Seymore: Hi, guys. Just want to echo the congrats for Prashanth. A quick clarification then a question. The clarification is when you talk about the second half being a little bit weaker is that fiscal year or calendar year? And then the two question is on the automotive side of things. You've mentioned a couple of times that it's kind of SAR dependent, but the bigger trend in automotive over the last few years has been mainly content. And you guys have benefited from that as well. I think you're one of the first companies in the semi side to guide that down, albeit minimally on a sequential basis. Has something changed there, that you're seeing that others aren't, is it inventory, is it demand, just anymore color on that would be helpful? Vincent Roche: Yeah, Mike. You want to take that? Michael Lucarelli: Yeah. I'll go the first part, Ross, I gave a little bit of comments around kind of what I thought would be for our fiscal 4Q and fiscal 1Q outlook based on kind of normalization. So you can kind of take from that and parse that with your question about is it fiscal second half or calendar second half and put it along that, it's both. With that, I'll pass it to on the auto side. Prashanth Mahendra-Rajah: I'll take it. All right. Yeah. So look, we've grown 10 quarters in a row and the growth was -- for the last quarter was very broad-based, again across all applications. As we think about the outlook, we are beginning to see some softening though the underlying content growth continue and our top line should still prove to be a strong multiple of SAR. There is some decline that relates to our strong position in China EV. So when you asked about what's different for ADI, Ross, I think that the share position we have in China EV is probably one of those differentiating factors. And that is going through an adjustment as well. While China EVs are still expected to grow, it's not going to be growing as fast as we had originally thought. And so, as this market comes back, it's going to provide the tailwinds we need for our automotive businesses because we have very high share. Again take a step back, we remain very confident that this is a business with the strong product portfolio we have, battery management, in-cabin connectivity with GMSL, A2B, and functional safe power. These represent about half of our business and in a flat SAR environment, we are still going to be able to do double-digit growth. Ross Seymore: Thank you. Michael Lucarelli: Thanks, Ross. And Liz, we go to our last question, please. Operator: This question comes from the line of William Stein with Truist Securities. William Stein: Thank you for taking my questions. Two quick ones, if I can squeeze them in. First, I wonder you've been very optimistic or relatively optimistic about pricing in the past few discussions we've had, essentially highlighting that foundries are either still raising or certainly not lowering and you're having no problems passing that on. I'd like you to comment if there is any update in that regard. And then the other is just to try to get maybe linger a moment and get a better understanding for what happened in China, because earlier in the quarter, I think you've met with us and some other investors and discussed how business there was recovering. What -- how can you explain how quickly this seems to have changed from improving in China to suddenly getting even worse? Thank you very much. Prashanth Mahendra-Rajah: Yeah. Thanks, Will. I'm going to do the China one first, so Vince can address the pricing one. The China one is pretty straightforward. We -- as most of the industry, we were watching the recovery coming out of the multi-quarter shutdown in China as well as the Chinese New Year activity looking to see business begin to return to normal levels, given that we had couple of down quarters. We saw a pop-in activity and order activity in the -- as we came out of Chinese New Year. Based on that, we made supply available to the channel that supply did not move as things kind of quickly got softer or didn't move as much I can say, didn't move as much. And therefore, that's why we've now said, for the current quarter, we are going to ship in less than we sell-through to help readjust that level in primarily in Asia. And with that, I'll hand-off to Vince to take the pricing question. Vincent Roche: Yeah. Thanks, Prashanth. Yeah. Well, I think that the headline of pricing, is that it is very, very resilient. And I expect that to persist. In general, we're getting -- we're putting more value to our customers, we're giving more value to our customers. And in fact the core ASP of our product portfolio has been increasing, not including incidentally inflationary cost that we pass to our customers. So, I think one thing we can say for sure about our franchise is. Our products are very, very sticky, our products persist for many, many decades for example in the industrial sector. And we're in the post Moore's Law era, where the economic conditions have changed fundamentally. So I expect the pricing arena to be very steady across the industry. And in general in the years ahead and we will look for opportunities to pass on inflation, which is going to be persistent in the industry, I believe, in the coming quarters. William Stein: Thank you. Michael Lucarelli: Thanks, Will. I thank everyone for joining us this morning. A couple of items before I'll let you go on your way. First, we are playing combined, our general ledger (ph) ERP systems this quarter. This represents one of our final steps for the Maxim integration. Given our typically fast reporting cycle, we've given ourselves an extra week to ensure everything runs smoothly. As such, we plan for our earnings call to be held in the third-week of August versus the second. Also, I wanted to flag that during these more uncertain times and consistent with our commitment for transparency for our owners, we plan being even more available for investors. Vince and Prashanth will be in New York, Boston, The Bay Area and London in the next quarter. Please reach out to the IR team if you be notified when we are in your neighborhood. And with that, a cognitive transcript will be available on the website. Thanks again for joining us and your continued interest in Analog Devices. Have a good day. Operator: This concludes today's Analog Devices conference call. You may now disconnect.

Operator: Good morning, and welcome to the Analog Devices First Quarter Fiscal Year 2023 Earnings Conference Call, which is being audio webcast via telephone and over the web. I’d like to now introduce your host for today’s call. Mr. Michael Lucarelli, Vice President of Investor Relations and FP&A. Sir, the floor is yours. Michael Lucarelli: Thank you, Gigi, and good morning, everybody. Thanks for joining our first quarter fiscal 2023 conference call. With me on the call today are ADI’s CEO and Chair, Vincent Roche; and ADI’s CFO, Prashanth Mahendra-Rajah. For anyone who missed the release, you can find it and relating financial schedules at investor.analog.com. On to disclosures. Information we’re about to discuss includes forward-looking statements, which are subject to certain risks and uncertainties, as further described in our earnings release and in our periodic reports and other materials filed with the SEC. Actual results could differ materially from the forward-looking information as these statements reflect our expectations only as date of this call. We undertake no obligation to update these statements except as required by law. Our comments today will also include non-GAAP financial measures, which exclude special items. When comparing our results to our historical performance, special items are also excluded from prior periods. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures and additional information about our non-GAAP measures are included in today’s release. And with that, I’ll turn it over to ADI’s CEO and Chair, Vincent Roche. Vince? Vincent Roche: Thanks very much, Mike, and good morning to everyone. Well, I’m very pleased to share that ADI continued to execute exceptionally well in the first quarter of fiscal 2023, despite continued macroeconomic uncertainty. Revenue was $3.25 billion, up 21% year-over-year, strength was broad based with all B2B markets, up single-digits. Gross and operating margins were 74% and 51% respectively and adjusted EPS achieved another record at $2.75. Our continued success is driven by a relentless focus on customer collaboration, a growing demand for our innovative technologies and strong operational execution. We play a long game and are excited about what the future holds for us to ensure that we capture the opportunity ahead. We’ve been steadily increasing investments in R&D, manufacturing capabilities and in partnerships that deepen our value to our customers now and over the long-term. For example, in R&D, we’ve invested $1.7 billion over the trailing 12 months to strengthen our core franchises and capture market opportunities presented by secular growth drivers. Over the same period, we’ve invested $760 million in CapEx to enhance the resiliency of our internal semiconductor manufacturing operations. These investments not only increase our operational resiliency, but also modernize our fabs to better address our sustainability ambitions. As mentioned in our press release, our industrial and automotive businesses remain strong as we gain market share. So this morning, I want to focus specifically on our industrial business, which continues to grow significantly despite the macroeconomic backdrop. Now, from a big picture perspective, the industrial market is the bedrock of ADI, representing more than half of our total revenue. It’s also our most diverse and profitable business segment with tens of thousands of customers and products that sustain revenue streams for decades. Additionally, ADI’s industrial revenue is derived from high performance technology in mission-critical CapEx-intensive equipment across the myriad applications. Our leadership position has been strengthened over the last decade as we intensified our focus in this market and invested over $5 billion in R&D activities to capture the opportunity across the hundreds of applications that characterize the industrial sector. This space is inherently fragmented and the unmatched breadth and depth of ADI’s portfolio uniquely allows us to address our customer’s needs across the full spectrum of applications. With core component building blocks to application-specific solutions that encompass analog, digital and algorithms. Today, we’re seeing the rise of new industrial applications that require more sophisticated and more complex architectures as machines become more intelligent and more sustainable. This is driving more semiconductor content per dollar of CapEx, unlocking new opportunities for our portfolio. While this transformation is benefiting all of our industrial applications, including healthcare and aerospace, let me share how we’re winning an industrial automation and instrumentation more specifically and discuss the burgeoning opportunity across the electrification ecosystem. So, starting first with industrial automation. Here, our customers are upgrading their factories with more automation and connectivity to increase output with greater energy efficiency. ADI’s broad portfolio helps customers create these more resilient and flexible footprints while lowering their carbon emissions on the journey to net-zero. As an example, at a leading U.S. robotics manufacturer, we’ve won additional content across power sensing and GMSL connectivity. Our systems approach reduced our customers’ design time and increased our content per cobot by 4x. Also in the last quarter, our IO-Link solution was designed in at multiple leading industrial automation customers. These solutions are critical for delivering robust connectivity to the edge of the factory floor. Turning our attention now to our instrumentation and test business. This subsector is highly aligned to secular growth trends from connectivity to AI-assisted compute to electrification to drug discovery and gene therapies. The consistent thread across this diverse set of applications is the growing complexity that requires more advanced metrology and test. The results, our average content per system is now 2x to 3x higher. Further, the localization of semiconductor supply is providing additional tailwinds for our test business. We’ve secured multiple design wins in North America as well as Asia for memory and high-performance compute. And finally, on to one of our fastest-growing areas, the electrification ecosystem. The collective need for a more sustainable future is driving massive growth in electrical grid infrastructure. Now let me share two examples with you. First, industrial and automotive companies have announced more than $300 billion of investments in greenfield gigafactories, essential to the production of batteries to proliferate the electrification ecosystem. These gigafactories will drive additional demand for our formation and test solutions critical to producing higher density batteries. Further, given the inherent safety hazards of using higher cell voltages, these factories will also provide new growth vectors for ADI. In our sustainable energy franchise, we’re leveraging our industry-leading automotive BMS solutions into energy storage systems for electrical grids and fast-charging infrastructure. We’ve won designs at leading EV infrastructure manufacturers in North America, Europe and Asia, putting us on a path to more than tripling this business in the coming years. Of course, while no market is fully immune to adverse economic cycles, our industrial business is highly diversified and aligned with secular trends. This has translated to more durable revenue streams with sales in this sector increasing more than 25% over the trailing 12 months despite a weakening economic backdrop. But looking ahead, we see continued strength in this franchise as the breadth and depth of our portfolio, our deep customer collaborations and design win pipeline momentum underpin our new phase of profitable growth. So in closing, ADI’s business model is diverse, resilient and rich with opportunity. I’m very optimistic about what our future holds as we drive enhanced value for our customers employees and shareholders as well as society at large. And so with that, I’ll hand you over to Prashanth. Prashanth Mahendra-Rajah: Thank you, Vince. Let me add my welcome to our first quarter earnings call. My comments today, with the exception of revenue, will be on an adjusted basis, which excludes special items outlined in today’s press release. First quarter revenue of $3.25 billion finished at the high end of our outlook, driven by continued share gains in industrial and automotive. Our B2B markets represented 89% of revenue, up 25% year-over-year and increased 2% sequentially despite our first quarter typically being down. Now let’s look at performance by end markets. Industrial, our most diverse and profitable end market represented 52% of revenue and hit another all-time high. This business has grown sequentially for 12 consecutive quarters. All markets increased year-over-year, led by automation, sustainable energy, instrumentation and test. Automotive, which represented 22% of revenue, also achieved another record, increasing 29% year-over-year and 6% sequentially. All applications grew double digits year-over-year as our market leading positions across battery management and in-cabin connectivity continue to deliver significant growth. Communications, which represented 15% of revenue, grew 18% year-over-year. As expected, comms declined slightly sequentially as strength in wired was offset by softness in wireless due to the timing of 5G deployments. And lastly, consumer, which represented 11% of revenue, was down 5% year-over-year and declined 14% sequentially given weaker market trends and seasonality. Now onto the rest of the P&L. Gross margin of 73.6% expanded 170 basis points year-over-year, unfavorable mix and cost synergies. OpEx was $733 million down slightly sequentially as we balance strategic hiring with the tight discretionary spend and synergy capture. Given our strong operating leverage combined with the synergy savings, our operating margin was 51.1%. Importantly, we have already captured nearly all of the $400 million cost synergy goals. As such, our communication will now turn to the revenue synergy opportunities from our combined portfolio and our complimentary customer base with Maxim. Recall that Anelise, our Chief Customer Officer, unveiled how we are strategically approaching these synergies during our Investor Day, and Vince has routinely highlighted some of these compelling opportunities over the past few quarters. To that end, we are closely monitoring and measuring progress from opportunity to design win to new revenue. And while it is still early, design win momentum to date has exceeded our expectations. This gives us increased confidence in achieving our $1 billion plus revenue synergy opportunity that we outlined at our Investor Day. Non-op expenses were $60 million, and the tax rate was just over 12%. All told, EPS came in at $2.75, up 42% year-over-year and hitting a new record. Moving to the balance sheet. We ended the quarter with approximately $1.7 billion of cash and a net leverage ratio below 1. Days of inventory increase to 155, while channel inventory remains below our target level. Recall that last quarter, we outlined our strategy to rebuild strategic die bank and hold more finished goods inventory on our balance sheet as we moderate shipment into the channel during this time of inflection. Moving on to cash flow. CapEx for the quarter was $176 million and $764 million over the trailing 12 months, representing 6% of revenue. We continue to expect CapEx to be high-single-digits as a percentage of sales in 2023 and then decline in subsequent years to our long-term target of mid-single-digit. These investments will double our internal revenue output exiting next year and support strategic swing capacity between our fabs and our foundry partners. The flexibility of our hybrid model across different geographies enhances our resiliency and offers our customers additional optionality. Over the trailing 12 months, we generated $4.3 billion of free cash flow or 34% of revenue. Over this period, we have returned $4.7 billion to shareholders or over 100% of free cash flow via $3.1 billion of buybacks and dividends of $1.6 billion. We just raised our quarterly dividend by 13%, marking our fifth consecutive double digit increase, and 19 consecutive years of increases. This is a testament to our durable operating model that has generated positive free cash flow for 26 consecutive years. As a reminder, we target 100% free cash flow return. The dividend is the cornerstone of this policy, and we look to increase our dividend at a 10% CAGR through the cycle with remaining cash used for share count reduction. Now, similar to prior quarters, I’d like to give a brief update on the operating backdrop. First, on markets. Industrial orders, as Vince highlighted, remain the strongest followed by automotive, while comms and consumer remain weak. Given the rapidly changing environment, we are diligently working with our customers to remove orders that they may no longer require. At the same time, we have increased our supply by growing our internal output and working with our foundry partners. These actions have reduced our lead times with half of our portfolio now shipping in under 13 weeks. Despite this, backlog coverage remains around one year of revenue. As such, we expect our book-to-bill will remain below parody over the next couple quarters as our backlog returns to more normal levels. Given these dynamics, we are guiding second quarter revenue to be $3.2 billion plus or minus $100 million. We expect continued sequential growth in our industrial and automotive markets and another sequential decline in our communications and consumer markets. At the midpoint of our outlook, revenue will be up high-single-digits year-over-year with our B2B markets up over 10% once again. Operating margin is expected to be 51% plus or minus 70 basis points. Our tax rate is now expected to be between 11% to 13% for the year. This guide reflects the new U.S. tax requirement to capitalize R&D expenses for tax purposes, resulting in higher upfront cash tax payments, but lowers our effective tax rate temporarily due to the deferred tax accounting requirements. Based on these inputs, adjusted EPS is expected to be $2.75, plus or minus $0.10. In all, the macro backdrop remains uncertain. However, we remain cautiously optimistic on the near-term, given the resilient strength across our industrial and auto businesses, which represent over 75% of our revenue. Longer-term, we remain well positioned to drive growth enabled by our diverse high performance portfolio aligned with the key secular trends at the Intelligent Edge. Let me now pass it back to Mike for our Q&A. Michael Lucarelli: Thanks, Prashanth. Let’s go to the Q&A session. We ask that you limit yourself to one question in order to allow for additional participants in the call this morning. If you have follow-up question, please requeue. I’ll take your question if time allows. With that our first question, please. Operator: [Operator Instructions] Our first question comes from the line of C.J. Muse from Evercore ISI. C.J. Muse: Yes, good morning. Thank you for taking the question. I guess the – my question really would center around the industrial strength that you’re seeing. You talked in great detail around kind of emerging new markets as well as increasing content yet, I think a lot of investors are focused on kind of declining PMIs around the globe. And so we’d love to hear your thoughts on why your business is, acting so very different from, maybe some of the larger macro trends. And perhaps more color on how much of it is content? How much of it is maybe emerging growth areas that are not reflected in some of these PMIs would be very helpful? Thanks so much. Vincent Roche: Yes. Thanks, C.J. So, I think first and foremost, our success isn’t by dent of chance. We’ve been investing heavily in this market for more than a decade, and it’s really our focus. It’s our core, it’s the core of ADI and from both an R&D and customer engagement perspective, we’ve been really doubling down here over this decade plus kind of time span. And we’ve been gaining market share for sure. We have – compared to even kind of three years, four years ago, we have – we’ve always had a very strong position in the signal chain, the kind of data path processing electronics, but we’ve been able to, with the acquisitions of LTC and Maxim, we’ve been able to bring very strong competitive power portfolio to bear as well. So, I think from a portfolio perspective, we’re in much better shape. I pointed out in the script as well that when we talk about industrial, it’s truly the industrial sector. I know many competitors talk about other kind of indescribable sectors or businesses that are not well understood, like consumer, for example, other consumers. So, I want to point that out as well. We have, as I said, many secular growth drivers in play. We see the average content per dollar of CapEx spend increased at a pretty meaningful level across all the applications, including instrumentation, factory automation is changing also. It’s bringing more sensing, more compute to the edge and all of that is driving content gain for ADI. So, I think they are the primary drivers of the business. And yes, PMIs are, I would say, in the kind of retraction zone right now, but we see stabilization. And I think when China comes back as well, which is likely to happen, we believe, over the coming months, that will drive things even further into a positive zone. Prashanth Mahendra-Rajah: C.J., this is Prashanth. I’ll just put one more thing just to help folks understand kind of the breadth of that growth. All of our submarkets were up double digits year-over-year, and most of them increased quarter-over-quarter. And if you look at it by geography, we had strength in America, Europe and Japan, again, all up double digits year-over-year, offsetting a weaker China. So this industrial strength was very broad-based. Michael Lucarelli: Thanks, C.J. Operator: Thank you. [Operator Instructions] Our next question comes from the line of Vivek Arya from Bank of America Securities. Vivek Arya: Thanks for taking my question. I actually had a pair of kind of related question, which is how long can book-to-bill remain on before it starts to become, [indiscernible]? And usually, if I look historically for ADI, generally, the second half tends to be better than the first half. What would support that view or prevent that from happening this year? Prashanth Mahendra-Rajah: Okay. Yes. So Vivek, let me maybe take a walk through cancellations, backlog lead times to help answer that. But I do want to clarify, you said on book-to-bill. Our book-to-bill is sub one. I thought I heard you say it was one. Our book-to-bill is sub one. We told you that was happening a couple of months ago, and I’d expect to carry for another quarter or two as we get through this backlog. So on the backlog, we’ve been saying for a while now that we’ve got record backlog, and we are working with our customers and our disti partners to get this rationalized with what customers need today versus perhaps the orders they had placed on us six months or nine months ago when we had very long lead time. This progress is what is being reflected in that book-to-bill ratio below one. I think that it will probably be below parity for another quarter or two as we get back to normal backlog. Lead times, the supply-demand imbalance is definitely getting better, slowly, but it’s getting better. We’re getting more wafers externally, thanks to the hybrid model. We have the flexibility to do that as well as the investments we’re making internally as we’ve talked about with our CapEx deployment to increase production. So, we have about 50% of the portfolio under 13 weeks today, meaning it can ship within the quarter, and that’s going to continue to improve over the – through the second half. So takeaway sort of given lead times falling, bookings getting higher quality compared to year ago as customers aren’t ordering for stuff way into the future. And at the place backlog, and we feel this is positive for visibility, and we’re really getting to true demand. Vivek Arya: And anything on second half, Prashanth, because it looks more like a soft take of then a soft landing from the trends? Prashanth Mahendra-Rajah: So, I don’t want to go out too far, but I’ll just give you a couple of comments here. And if Vince wants to make any long-term comment. We feel good about the outlook for the second quarter given the resiliency in auto and industrial. As I said, 75% of our sales come from those two segments, and we still have a year for the backlog. Beyond the second quarter, it’s hard on the one hand to make a call, given that we have strong backlog coverage, but we also understand there’s a lot of macro uncertainty out there and things are changing fast. So, I’m not going to make any predictions one area to pay attention to, and Vince made a comment on this, is China. I think we and many companies are watching China. If demand accelerates in the second half given sort of the optimism on consumers and government that would be – that would be good for a number of organizations. Vince, anything more longer term, you want to add on that? Vincent Roche: Well, I think, Prashant, we’ve clearly built a lot of resiliency into the way we run the company into the business model as well as the manufacturing operations. So, who knows what the second half is going to bring. But what I can tell you is that – we’ve been through many, many cycles before and never have we been better positioned in our history than we are now from a portfolio, from a customer engagement standpoint. So – this industry is likely – it’s taken us kind of 20 years to double from kind of 2000 to 2020, we’ve probably doubled the content that the industry builds over the next 10 years. And I believe ADI is very, very well positioned given the strength, as I said, of our portfolio, our customer engagements, and this hybrid manufacturing model that we’ve got in place to enable us to capture the upside and manage the downside. Michael Lucarelli: Thanks, Vivek. Next question please. Operator: Thank you. [Operator Instructions] Our next question comes from the line of Tore Svanberg from Stifel. Tore Svanberg: Yes, thank you and congratulations on the results. So on Maxim now that we’re sort of moving from the cost synergies to the revenue synergies, are there any particular areas that we should keep an eye on there, whether end markets or product categories where you expect to see that $1 billion in synergies? Prashanth Mahendra-Rajah: Yes, let me – let’s do that in two parts. I’ll give you a little bit of context so that everyone remembers what we talked about and then hand over to Vince. So we’ve closed on the cost synergies. We feel great about that. So we’re focusing now on revenue synergies, and we’re tracking ahead of schedule. We think about that synergy in stages. So first we need to identify the socket, we need to win the socket, we begin shipping to the customer, and then we hit volume. So we are tracking all of those stages through our internal material. As I said, Anelise gave you a target in April to come – to deliver $1 billion of incremental. Vince is holding her to a higher bar than that. So she’s on track to hit that $1 billion. And we’ve got – we’ve seen early success. I think you’ve heard Vince share a couple examples over the last couple quarters. For example, in the – our ability to cross sell A to B as well as put GMSL into non-auto customers which is new. So let me pass off to Vince here for what are some of the other areas that we’re thinking about? Vincent Roche: Yes. When we announced the combination, Tore, with Maxim, we pointed out two particular market areas where we thought ADI was underweight, where power in particular, power management was really important, power in data center, for example. And as the compute density skyrocket, and in fact in the compute area, performance and power are pretty much one and the same thing. So we have now a very competitive power portfolio that we can bring to more application specific areas such as data center as well as automotive. The – I think a very positive surprise is that the connectivity portfolio based on GMSL, the multi gig serial link is that not only are we gaining more and more traction in automotive, but also we’re bringing it to other areas such as industrial, as Prashanth mentioned. BMS, we’ve got 16 of the top 20 wired BMS OEMs sockets in the top 20 OEMs. And Maxim strengthens that portfolio as well. So in industrial, I mentioned in the prepared remarks that the I/O link technology is very, very, that Maxim brings to bear is very, very complementary with ADI’s data path solutions. So I think there are multiple areas and I think the message I want to convey here is that I was always optimistic about what we could do with a greater channel, more cross connectivity to the ADI portfolio. But I’m more enthusiastic than ever based on what I’m actually observing now with the various markets and customers in which we’re playing. Tore Svanberg: That’s very helpful. Thank you. Operator: Thank you. One moment for our next question. Our next question comes from the line of Chris Danely from Citi. Chris Danely: Hey, thanks guys. Just a little more clarification on the lead times and the shortages. So you mentioned that half of the portfolio has lead times of less than 13 weeks right now. Can you talk about what that was three months ago? And then when would you expect the lead times to, I guess, “largely normalized” and with a couple flat quarters? And it seems like you got plenty of inventory. Why aren’t these lead times normalizing a little bit faster? Thanks. Prashanth Mahendra-Rajah: Sure. Chris let me – Michael have to remind me where we were three months ago. But the – so the supply demand balance is getting better. And we’re getting that – we’re getting more wafers, so – in addition to our internal production. The way to think about the lead times is we’ve got half the portfolio shipping within the quarter. And certainly in the next quarter or two, we will have the overwhelming majority of that down to within one quarter. The inventory build as I mentioned, is in part due to our desire to kind of keep more inventory on ADI’s books because we are clearly in a period of great uncertainty and we’re being very mindful of putting too much to our channel partners when there’s this much uncertainty out there. So that will – as lead times improve, our channel partners can count on us to get what they need in quick terms, and then we’ll be able to more reliably think about what’s the right stocking level for the channel. Michael Lucarelli: Okay. And Chris to your question, where was it beginning the quarter. If you look at that metrics under 13 weeks, beginning of the quarter was probably about 25% of the portfolio. So we doubled that number and Prashanth laid out, we want to get it close to a 100% exiting this year. And I know Vince is pushing hard to get even sooner than that. I think the biggest takeaway at lead times is the short lead times, the more high quality the bookings are. I think that’s what we want to see is the true underlying of what demand is as those lead times continue to come in and why does it take so long while demand is strong, right? Demand is strong, it’s harder to reduce lead times in a strong demand environment. Chris Danely: Great. Thanks guys. Operator: Thank you. One moment for our next question. Our next question comes from the line of Stacy Rasgon from Bernstein Research. Stacy Rasgon: Hi, guys. Thanks for taking my question. Maybe it’s a dumb question. But I’m having a little bit of trouble squaring the majority of the portfolio getting to be within 13 weekly times together with a year’s worth of backlog. How do I square those two things? It feels like the backlog should be shorter if the lead times are actually like getting back to normal. Maybe the other way to ask it is when the majority of the portfolio has 13-week lead times, where do you expect that backlog to be? Prashanth Mahendra-Rajah: Yes, so Stacy, I think perhaps the missing elements of your – of how you’re thinking about it is the assumption that that backlog is delinquent. It is not. The – when the lead times get extended, customers put the orders on us, but they also tell us when they want that product delivered. So there’s a visibility curve to that backlog. It is not that it is all past due and needs to be shipped against. Stacy Rasgon: Oh, I see. Okay. So you’re – okay, so you’ve got orders out. We know that we’re going to be shipping this to you in six months and they placed it [ph]. So I guess where do you expect that backlog to be standing given what you see for demand once, say we’re in a quarter to pass this and the majority of the portfolio is shipping within a quarter. Where do you expect the backlogs to be? Prashanth Mahendra-Rajah: Well, let’s go back to the – if we get to – if we return to what was normal for us pre COVID, let’s say that’s the best perspective we can give you. If we return to what does normal look like then at the start of a 13-week quarter, we would have about 10 weeks of that quarter in backlog. And then there would still be some incremental backlog out there for future quarters, but it would be meaningfully smaller because customers know that they can put that order on us in essentially less than a quarter’s notice. So that’s what normal looks like. Now, given the supply, demand challenges and the increasing importance of Analog’s products to our customers, we may benefit from some greater visibility in the future, but I don’t want to call that today. Stacy Rasgon: Got it. So I guess, does this mean, are you effectively over shipping demand right now because the backlog is pulling it? Or is that not the right way to think about it? Prashanth Mahendra-Rajah: No, I would – I’m not sure how you would conclude that. We are – we have the – we have demand from our customers in that backlog that tells us. I want this product in Q1, I want this product in Q2, this product in Q3, and that is what we are matching up for. But it gives us a visibility that we have historically not had at this level. That is why they are not as incentive to put new orders on us, is because they’ve given us those orders, hence book to bill below one. Vincent Roche: Yes. One other thing we’re pointing out, Stacy, is that we run – our demand signals are sell through. We run our factories on the basis of POS demand rather than sell in or POA demand. So it gives us more integrity around the demand signal. Stacy Rasgon: Got it. Okay. That’s helpful. I won’t monopolize anymore. Thank you so much, guys. Michael Lucarelli: Thanks Stacy, for that three part question. You use your question for next quarter, so we’re not going to – have the call next quarter. Next question, please. Operator: Thank you. One moment for our next question. Our next question comes from the line of Ambrish Srivastava from BMO Capital Markets. Ambrish Srivastava: Hi, thank you. I’m going to keep it to one. Mike, I don’t want to get any of bad site. Vince, I actually wanted to focus on a bit on the long-term here. I was called out a much higher growth rate for analog and for themselves as a result. And I was wondering if you share the same view, I know you guys have had a 7% to 10%, and Vince you have always all the conversations over the years, you always felt that the analog industry going forward should grow faster than the 5.6 odd that we’ve seen over the long-term. So I was just wondering how you think about analog growth and you called out a bunch of secular drivers that, four or five years ago didn’t even exist for the analog industry and broadly for semis. Thank you, Vince. Vincent Roche: Yes, thanks, Ambrish. Well, I think, as I pointed out in the prepared remarks, we are seeing more, for example, in the industrial space, more content per dollar of CapEx invested by our customers. And that trend has been in play for several years now. That coupled with ADI’s portfolio strength, the breadth we have the, as I mentioned, the data path, which has been ADI core, ADI traditional strength, adding LTC and Maxim Power portfolios. That gives us the opportunity to tap into more of the TAM, so to speak. Half of the analog market, TAM is kind of data path. The other half is power. So we’ve now got the, the highest performance portfolio in the industry, the greatest breadth and depth. And, when you see what’s happening there with healthcare, our digital healthcare business, which is getting on for, kind of a $1 billion over the next year, year and a half aerospace and defense, coupled with automation and instrumentation that we’ve talked about in the prepared remarks. We’re very, very bullish about our ability to drive growth in the market. The other thing I want to point out is that we focus on driving our revenue growth through high quality innovation for which we get paid. We get three times the ASPs of the analog market at large, and we get more than that, compared to our biggest competitor. So I want to make the point that we focus on shipping value versus volume. So I think with the sector growth drivers, the way we’ve structured our business model, our focus on high performance and being able to capture more value with all the things we talked about over the course of the call here, I’m focused on what we can do as a company and I believe we’re better positioned than ever. Prashanth Mahendra-Rajah: Ambrish, Prashanth, maybe just a just two things to add. First our long-term growth model is built on all of our segments. So industrial certainly is an important, very, very important part of it. But we look for all of our operating segments to be able to contribute to that. We’ve had two consecutive record years with greater than 20% growth. And with the numbers that we’ve shared today, we’re off to a strong start for 2023. Our 7% to 10% CAGR outlook, which we revealed, unveiled last April, already reflected a faster growth versus sort of the historical mid-single digit rate. And as we said in the prepared remarks, as well as in addressing, I think it was Tore’s question we have a, we have meaningful delta with the revenue synergies from Maxim, which is really idiosyncratic to the ADI story. Vincent Roche: Yes, I just want to add one final comment to this, just want to add one final comment Ambrish, to this part of the conversation, I’ve had innumerable conversations with CEOs across the globe over the last three years in particular, it’s certainly intensified with the crunch on supply. But I got two consistent questions from them. Irrespective of what sector they’re in, how can we get closer to ADI’s longer term technology roadmap, and also how do we bond together more tightly when it comes to understanding supply chain and collaborating more together across those two dimensions. So that’s the sentiment and I think given the way we’ve conducted ourselves over the last the last three years we’ve, we’re better positioned. Our brand is has been augmented and strengthened over the last several years. So yes, I think we’ve got a lot of strong logic as to why the market will strengthen and why ADI will be better positioned than ever to capture the opportunity. Prashanth Mahendra-Rajah: Thanks, Ambrish. Ambrish Srivastava: Thank you. I’ll jump back in queue. I don’t want to get on mics. Michael Lucarelli: Not a bad side. Vincent Roche: Last question? Michael Lucarelli: Last question please. Operator: Thank you. One moment for our next question. Our next question comes from the line of Harlan Sur from JPMorgan. Harlan Sur: Hi, good morning. Thanks for taking my question. There’s second half uncertainty as you mentioned, probably more so in your comms and consumer businesses, maybe a little bit in industrial due to the soft PMIs as was mentioned earlier. But global auto demand trends, especially EVs remains pretty resilient, right? And you guys have a strong design wind portfolio and automotive that is starting to unfold. I know last earnings call, last month at CES, the team remained pretty confident on growing your automotive business this year by double-digit percentage on a flattish, sort of SARs. So, if you look at some of the third party research, I mean, SARs is forecasted to grow 2% to 3% this year. So is the team still confident on driving strong double-digit percentage growth profile this fiscal year on auto? Prashanth Mahendra-Rajah: Thanks, Harlan. Yes. So if we look at our outperformance versus SAR, it comes down to a couple items. First, as you mentioned, there’s a mix of premium cars, so higher content per vehicle and EV growth is accelerating. And our content is 3x as high on an EV versus a traditional ICE car. We’ve spoken at length that we’ve got real key content adders, our BMS product, our GMSL and our A2B are adopted and they’re really taking meaningful market share across all of our customer base there. And I think because of the performance that we bring to our customers, we’re able to capture value better than perhaps some others. So with those three working, we’re, we still feel pretty good that that we’re going to continue to have a, 2x to 3x multiplier on SAR. So I don’t want to make a prediction as to what SAR is. So you’ve got a, I think IHS has a mid-single digit number, a lower mid-single digit number out there. But we’re for the year, I expect us to kind of be 2x to 3x wherever that lands. Harlan Sur: Perfect. Insightful. Thank you, Prashanth. Michael Lucarelli: Thank you Harlan, and thanks everyone for joining us on the call this morning. Two quick ones before I let you guys go. Our next earnings call will be held a week later than normal, as Vince was asked to give a keynote at IMAX Technology World Forum. So do not panic when we see your announcement. The earning is not two and a half weeks after closed, but three and a half weeks. Second, we’re planning to restart our ADI on coverage series where we do a deep dive into a market in the coming months. The first one will be on some of the topics we hit on today, automation, energy efficiency, sustainability, electrification. So stay tuned for those. And with that, thanks again for joining us and interest in Analog Devices. Operator: This concludes today’s Analog Devices conference call. You may now disconnect.

Operator: Good morning, and welcome to the Analog Devices Fourth Quarter and Fiscal Year 2022 Earnings Conference Call, which is being audio webcast via telephone and over the web. As a reminder, this event is being recorded. 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. Michael Lucarelli: Thank you, Betsy, and good morning, everybody. Thanks for joining our fourth quarter and fiscal 2022 conference call. With me on the call today are ADI's CEO and Chair Vincent Roche; and ADI's CFO, Prashanth Mahendra-Rajah. For anyone who missed the release, you can find it and relating financial schedules at investor.analog.com. On to disclosures. The information we're about to discuss includes forward-looking statements, which are subject to certain risks and uncertainties, as further described in our earnings release and in our periodic reports and other materials filed with the SEC. Actual results could differ materially from the forward-looking information as these statements reflect our expectations only as of the date of this call. We undertake no obligation to update these statements except as required by law. Our comments today will also include non-GAAP financial measures, which exclude special items. When comparing our results to our historical performance, special items are also excluded from prior periods. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures and additional information about our non-GAAP measures are included in today's earnings release. And with that, I'll turn it over to ADI's CEO and Chair, Vince. Vince? Vincent Roche: Thank you, Mike, and good morning to you all. Well, I'm really extremely pleased to share that we delivered another record quarter, capping off what was a better year for ADI. Our fourth quarter revenue was $3.25 billion, and adjusted EPS was $2.73, and both at the high end of our outlook. For the fiscal year, revenue was $12 billion, up an impressive 26% year-over-year on a combined basis. Our Industrial, Automotive and Communications markets delivered all-time high revenues, and our Consumer business continued to grow despite industry-wide weakness. Adjusted EPS increased by nearly 50% to $9.57. We also delivered on our commitment to return 100% of free cash flow to shareholders in '22, returning $4.6 billion through share repurchases and dividends. These results not only exemplify the strength of our portfolio, but also our deep customer focus and the hard work of our employees to fortify ADI's brand. To that end, in my recent conversations with customers, the message has been very clear. While we're not immune to supply disruptions, ADI’s service, quality and support throughout this challenging time continues to be outstanding. Importantly, this sentiment is shared by customers of all sizes and across all markets. As a result, our customers are calling upon ADI to engage in longer term, more strategic collaborations to develop solutions that further empower the intelligent edge. So to ensure we remain at the forefront of technological advancements and customer service. We invested $1.7 billion in R&D and $700 million in CapEx in FY'22. Now let me start with R&D. Our investments are targeted at strengthening our foundational high-performance Analog franchises as well as moving up the stack to create more complete solutions for our customers. A prime example is our Apollo platform, which we previewed at our Investor Day in April. Apollo is a flexible high-speed signal processing platform with unmatched levels of functionality, integration and performance, making it ubiquitous for all customers, but especially appealing to those in the broad market. During the quarter, we began sampling this innovative platform with our aerospace, communications and instrumentation customers and their feedback has been extremely positive. Turning now to the operations side. Over the last year, we invested a record amount of CapEx to increase our manufacturing output. And in 2023, we are, once again, investing aggressively in our U.S. and European factories to significantly expand our capacity. These investments will create a more flexible and cost-effective hybrid manufacturing model by increasing our swing capacity to around 70% of revenue in the coming years. Our R&D and supply chain investments are essential to support our design win pipeline, which expanded by more than 10% in '22. This growth was led by our automotive energy systems and digital healthcare businesses. Notably, our growth in Automotive was underpinned by battery management systems, or BMS, which now has an opportunity pipeline nearing $4 billion. This year, eight new manufacturers designed in our BMS solutions, including two that plan to utilize our wireless platform. Our strong leadership position combined with increasing EV penetration globally, gives me great confidence in our future growth prospects. Looking now at some selected design activity in the quarter. In industrial automation, we were designed into an advanced diagnostic system that monitors machine health at a global supplier for energy exploration. Our system solution approach enables an approximate 50% reduction in size and lowers wiring costs meaningfully. In aerospace and defense, we won RF module programs at multiple defense prime contractors. Our modules integrate hundreds of components to simplify the design process for our customers, while increasing our content from hundreds to thousands of dollars per system. In industrial instrumentation, we secured wins at two market leaders of next-generation high-voltage testers for electric vehicles and renewable energy systems. The combination of our high voltage processes and precision technology enables us to deliver accurate, reliable, and efficient testing required to scale the manufacturing of these systems. And lastly, in Communications, we expanded our leadership in 5G radio systems with our transceiver portfolio winning additional share at key suppliers. These new wins position us even better as 5G networks roll out globally, especially in India, and ORAN begins to proliferate. Importantly, our design pipeline is beginning to benefit from cross-selling our ADI and Maxim portfolios. This puts us on a path to achieve our target $1 billion in revenue synergies. For example, at a European auto manufacturer, we built upon our strong audio connectivity position to cross-sell our high-speed GMSL technology, connecting their advanced driver systems. We're also capturing new opportunities with GMSL in the Industrial market. Last quarter, for example, our technology was designed into autonomous order fulfillment systems at one of the largest e-commerce companies. We're also making great inroads with our broader power portfolio, where our opportunity pipeline increased by double digits last year. Our increased breadth is helping us to better match customers' performance and power trade-offs across more applications, expanding our power SAM to nearly $10 billion. For example, at a leading European industrial customer, our position in mid-voltage power for distributed I/O control systems enabled us to pull through additional power content and precision signal chain sockets, thereby doubling our content per system. Our expanding pipeline and significant revenue synergy opportunities instils greater diversity and resilience into our business, while adding new growth vectors. And taken together, I'm confident in our ability to bend the growth curve and move from our historical mid-single digit growth rate to our long-term model of 7% to 10%. So in summary, while the macro crosscurrents are creating an abundance of uncertainty, ADI has successfully navigated many slowdowns over the course of our 57 year history. The strength of our franchise allows us to invest through business cycles, ensuring we continue to deliver breakthrough innovation, deepen our relevance to our customers and capture the emerging secular opportunities at the intelligent edge. And so with that, I'll pass you over to Prashanth. Prashanth Mahendra-Rajah: Thank you, Vince. Let me add my welcome to our fourth quarter earnings call. My comments today, with the exception of revenue, will be on an adjusted basis, which excludes special items outlined in today's press release. We closed fiscal 2022 as our second consecutive year of record revenue and profits. We delivered sequential growth each quarter, achieving a new all-time high of $12 billion in revenue; gross margins of 73.6% increased 270 basis points due to favorable product mix, stronger utilization and cost synergies; operating margin of 49.4% increased 700 basis points, reflecting strong execution on OpEx synergies’ and adjusted EPS increased nearly 50% to $9.57. For the fourth quarter, revenue was $3.25 billion, finishing at the high end of our outlook. As I cover the performance by end market, both for the quarter and full year, my growth comments are on an adjusted combined basis where applicable. Industrial, our most diverse and profitable end market hit another all-time high and represented 51% of quarterly revenue. Growth was broad-based with each major application increasing sequentially and year-over-year. For the year, Industrial expanded 29% with growth in each business. Notably, digital healthcare was up over 30% and has now achieved seven straight record years. This consistent success in healthcare underscores the breadth of our ICs and subsystem solutions in a key secular growth market where such performance is critical. Automotive, which represented 21% of quarterly revenue, achieved another record year, growing both sequentially and year-over-year. For the year, Auto was up 31%, a favorable mix of premium vehicles, our growing BMS, GMSL, A2B and functional safe power franchises, combined with enhanced value capture drove significant growth compared to SAAR. Together, these franchises of BMS, GMSL, A2B and functional safe power represent over $1 billion of Automotive revenue. Communications, which represented 15% of quarterly revenue, achieved another record quarter with strong sequential growth in wireline, while our wireless business was about flat. For the year, Comms grew 27%. In wireless, our strong position in radio signal chains is enabling the 5G rollout globally. And in wireline, our optical and power portfolios benefited from the continued demand for bandwidth. Lastly, Consumer represented 13% of quarterly revenue and was up modestly sequentially and flat year-over-year. Despite a challenging year for the broader industry, Consumer finished up 8%. This growth is a testament to how we have diversified our Consumer business and the innovation premium our products command. Today, approximately 30% of revenue is derived from long life cycle prosumer applications, including next-gen conferencing systems, professional AV and home theater, while the remaining revenue in Consumer relates to the faster-growing wearables and hearables as well as premium smartphones. Now I'll move down the P&L for the fourth quarter. Gross margin was 74%, up 310 basis points year-over-year driven by favorable product mix and synergy capture. OpEx was $744 million, down slightly sequentially due to the realization of additional synergies. And operating margin increased 800 basis points year-over-year, finishing at a record 51.1% as we exited the year with roughly $350 million of synergies realized across OpEx and cost of goods in our run rate. This incredible pace of synergy capture would not have been possible without the dedication of our integration office and the cross-functional teams that supported them. Non-op expenses were $57 million, and the tax rate was 12.2%. All told, adjusted EPS came in at $2.73, up 58% year-over-year. Moving on to the balance sheet. We ended the quarter with approximately $1.5 billion of cash and equivalents and our net leverage ratio continues to remain below 1. Days of inventory increased to 140 while channel inventory was once again below our target range of 7 to 8 weeks. Let me provide some additional details on our inventory. But first, during these uncertain times, we believe it is prudent to temporarily hold more finished goods on our balance sheet instead of shipping into the channel. This provides us with enhanced flexibility to better align supply with end customer demand across regions and markets. Second, raw material and WIP are increasing as we begin to rebuild our die bank. Over the last couple of years, our die bank was drastically reduced. And in some cases, sits 50% below optimal levels. Die bank inventory is highly cost efficient and it's critical for customer service as it can be used for different markets and customers. We believe higher inventory is crucial to reducing lead times as we look to return to our 4- to 8-week target service level over time. Given these actions, we expect inventory to increase in the near term before trending back down as we balance die bank rebuild with finished goods depletion. Moving to cash flow items. CapEx was $305 million for the quarter and $699 million for the year or 6% of revenue. As we outlined at our Investor Day, we expect elevated CapEx through 2023 at around high single digits as a percentage of revenue. For fiscal 2022, we generated $3.8 billion of free cash flow or 31% of revenue. This is lower than normal given our higher capital intensity and onetime transaction and restructuring costs. These near-term headwinds were not unexpected when we outlined our long-term free cash flow target at our Investor Day and we remain committed to growing free cash flow to 40% of revenue. As a reminder, we target 100% free cash flow return. We aim to grow our dividend at a 10% CAGR through the cycle with the remaining cash used for share count reduction. And during the year, we returned more than 100% of free cash flow to shareholders. We repurchased $3.1 billion in shares, reducing share count by nearly 4%, while paying $1.5 billion of dividends. So let me close with a brief update on the current operating backdrop. As we noted last quarter, the uncertain and slowing macroeconomic environment has had some impact on demand. However, after a couple of months of slowing orders, we saw bookings stabilize during the quarter at what we'd consider relatively normal levels for entering our first quarter. Not surprisingly, bookings remain the strongest in the Industrial and Auto, while Communications and Consumer are weaker. We're guiding first quarter revenue to $3.15 billion, plus or minus $100 million. Given this environment, we thought it might be helpful to be a little more prescriptive in our outlook by market. So in the first quarter, we expect Auto to be up slightly sequentially; Industrial about flat; Comms to decline by mid-single digits; and Consumer to be down double digits sequentially. At the midpoint of our outlook, revenue will be up high teens year-over-year and our B2B markets increasing over 20%. Op margins are expected to be 50% plus or minus 70 bps. Tax rate is expected to be between 12% to 14%. And based on these inputs, adjusted EPS should be $2.60 plus or minus $0.10. So stepping back, we are well positioned in the near term, but the environment remains highly variable and dynamic. ADI like the rest of the industry is not immune to a softer macro environment; and thus, we remain cautious, yet optimistic. Longer term, we have over a year of backlog and continued momentum in our pipeline. We also have high flexibility with our hybrid manufacturing model and several OpEx levers in our toolkit to support our industry-leading margins and maintain robust cash returns to shareholders. So let me now pass it back to Mike for the Q&A. Michael Lucarelli: Thanks, Prashanth. Now let's get to my fair part of the call, the Q&A session. We ask that you limit yourself to one question in order to allow for additional participants on the call this morning. If you have any follow-up question, please queue and we'll take your question if time allows. With that, can we have our first question, please? Operator: [Operator Instructions] Our first question today comes from Tore Svanberg with Stifel. Tore Svanberg: Yes, thank you, and congratulations on another record quarter. Vince, a question for you. When you talked about the design wins, some of the design win activity, we continue to hear more and more of the system solutions. And I was just wondering if you could add a little bit more color on how your growth is being driven by higher ASPs? So I'm not suggesting higher pricing, right? I'm talking about higher ASPs because all of your products, obviously, moving up the value chain to more of a system solution type perspective. Vincent Roche : Yes. So thanks, Tore. Firstly, if you look at our ASPs compared to the Analog sector, we have a 3x multiple. And versus our closest competitor, we have a 5x multiple, and that diversion has been growing over the last several years. So, we decided quite a while ago that across the markets and the applications that we really cared about that what was really important for us to do was boil down the increasing complexity that our customers are dealing with in their product development systems and activities. And so essentially, what we've done is we've taken that complexity into ADI. We get to the other side of that complexity with the quality of our innovations and our ability to be able to couple many, many different facets of our portfolio together in areas like power management. We're building these 3D stacked module systems, sometimes with ASPs of hundreds of dollars. If you look at our 5G radio systems, same thing. We combine microwave. We combine data conversion, power, digital algorithms and so on and so forth. So we have -- within the company, we believe in diversity of technologies, solutions customers and that choice of business model, Tore, at the end of the day and how we execute it gives us the richer ASPs when compared with our competitors. Michael Lucarelli: Go to next question please. Operator: The next question comes from C.J. Muse with Evercore. C.J. Muse: Thank you for taking the question and happy early Thanksgiving. I guess I was hoping to probe a bit more around the cautious but optimistic view. You talked about orders stabilizing and a backlog that extends out 12 months. So I guess, first question, can you talk about what kind of scrubbing you've done on that backlog? And then secondly, based on that, how does that inform your outlook heading into fiscal '23? Prashanth Mahendra-Rajah : Let me take that and help give some color on the demand, order booking. So if you step back and think about last year, the first half of the year, we had orders at historical highs. And then last quarter in the earnings call, we called out that orders are beginning to slow, and that's a decline actually continued into the fourth quarter. However, we saw orders start to stabilize about midway through the fourth quarter and into the first couple of weeks here of the first quarter. So there was bookings our strongest in Industrial and Auto, not surprising and weaker in Comms and Consumer, which I reflected in the guide. From a geo standpoint, we'd say that not surprising. We're seeing weakness in Asia, especially China, but North America and Europe are holding up well. So given the combination of orders stabilizing and the backlog coverage that we have out, we feel pretty good about the near term. There is uncertainty out there, and things could change fast, but that’s sort of what's driving our sort of cautious optimism. Vincent Roche : Yes. One other thing, C.J., to note. We've said before, the signal we watch most carefully in terms of really trying to understand demand is sell-through rather than sell-in. So that, I think, gives us a deeper degree of reality and the match between true demand and supply. Operator: The next question comes from Vivek Arya with Bank of America. Vivek Arya : I actually wanted to follow up on that question. Vince or Prashanth, are you surprised why your orders and bookings are holding up better, even though all the headlines we see from a macro perspective seem to be getting tougher? So what is helping you? And then specifically within your Industrial business, is it fair to think that factory automation is perhaps the most macro exposed part? And if yes, how should we think about that specific part of your most macro exposed segment within the Industrial business going into next year? Vincent Roche : Yes. So, well, let me start with the automation question. I've talked about a lot of the automation customers over the last while. And there continues to be, I would say, bullish expectation. I mean they're not immune from the macro. I think some of our customers are experiencing some soft cancellations in their business. But if you look at what's happening, we're going to see the life sciences transform. We're in the early stages of small batch processing in life sciences for manufacturing, for example. The energy sector is another area where, particularly the American, the U.S.-based automation customers, a lot of their businesses are -- they have a very large portion in the energy sector, oil and gas, for example, and that is likely to remain strong. So if that's a bedrock. I think that will remain strong for for several years to come. We are seeing onshoring, reshoring. We're seeing movement of manufacturing, first time in India for the first time in a serious way. So my sense is, the industry won't outrun the macroeconomic conditions. But overall, I think the landing in terms of where demand will be softer than probably normal. Prashanth Mahendra-Rajah : Yes. Maybe, Vivek, just -- first, just to emphasize something that we said in the prepared remarks, all subsegments in Industrial grew in the fourth quarter, and we feel pretty good about where we are. From a strength in Industrial versus the other markets, I'd look at it two ways. First, from a supply standpoint as we were seeing demand softening in other markets, we have the ability to use our hybrid model to get more wafers from our external partners, and we are biasing this additional supply into the industrial market, which has remained resilient and strong. At the same time, recall, we made a decision early in the supply disruption to make sure that we were taking care of our broad market and our smaller customers who tend to be more on the Industrial side. From a demand standpoint, the strength and resilience in the Industrial kind of speaks to where we play. We have extremely high share in those markets. And maybe to note versus our peers, some of our peers have cited weakness in -- I think they're calling it consumer industrial. We, on the other hand, put that business into our consumer. We call it the prosumer business, professional audio, video, et cetera. So when comparing us to peers, you'll see that our Industrial may be more pure Industrial. Vincent Roche : Yes. I think as well, for the last decade, 12, 13 years, we've been treating Industrial as the bedrock of the company. So it gets first call on R&D investments, customer engagements. And never have we been more diverse in terms of geographies, customer coverage, depth of coverage, depth of engagement. So -- and also, we have product life cycles that stretch into the decades with very, very stable pricing. So I think all those factors combine to make this an extremely strong business currently, and we're very, very bullish about the future here as well. Operator: The next question comes from Joshua Buchalter with Cowen. Joshua Buchalter : Thanks for taking my question and let me echo Happy Thanksgiving. I wanted to ask about inventory levels and thank you in the prepared remarks for all the color there. I really understand the finished goods and die bank dynamics, along with the lean channel levels, but I was wondering at what range would we be at the point where you'd have to start taking proactive measures to lower inventories? I fully realize you haven't given an inventory target. But can you help us just directionally understand how you're thinking about that? Prashanth Mahendra-Rajah : So let me start with fourth quarter. Balance sheet days are up to about 140 and the channel is flattish, and it's still below our desired 7 to 8 target. So the growth in inventory that you're seeing in our balance sheet is coming from a couple of different drivers. Certainly, inflation for our cost of goods, sales growth, which requires us to have more coverage of inventory and then the strategic decisions we made in the prepared remarks. So I do just want to go through that one more time here. So we are temporarily going to hold more finished goods versus putting it into the channel. Because we believe that gives us the flexibility to align the supply with end customer demand across regions and markets. A bad outcome for us would be to give product to a particular distributor who doesn't have an end customer demand for that product, where someone else in a different market or geography is in need. Second, the die bank has really been dried out over the last couple of years. And I think I said, at some levels it's below 50% of where we want it. So die bank for us and for folks who may be less familiar with it, this is a product that has finished the front end, but before it goes to assembly and test. This allows us to get it through the back end in roughly four weeks. So it's quick turn, and it gives us maximum flexibility to put it across different markets. So investing in the die bank will help us get our service levels, which are critical for us given the focus we have on customer service, critical for us to get those levels back up. So the result is, expect higher days in the first half, and then it will trend back down as finished goods burn out and the die bank comes to where we would like it to be. So our goal for the inventory is to get our lead times down to our old target, which was roughly 90% of our goods can be shipped within 4 to 8 weeks. And given the long life of our products, we always carry a pretty minimal risk of obsolescence. Michael Lucarelli : Thanks, Prashanth. And Josh, one thing to add, you asked about utilization when we think about taking them down. One thing I wanted to point out is about our swing capacity and cross-qualification. So before we pulled down our internal utilization, we'll bring what we can back in from external, internal to support utilizations and our gross margins. Operator: The next question today comes from Ambrish Srivastava with BMO Capital. Ambrish Srivastava : I'm going to ask the same question. I think we're all struggling with it. You guys won a lot of accolades for being super transparent last earnings call talking about the order trends. I think Vivek asked the right question, were you surprised? Is there a seasonality to it? I mean nobody doubts your positioning and how strong you are in your chosen markets. And Prashanth, thanks for clarifying the prosumer versus other companies calling it legacy industrial. But is there a seasonal aspect to it as well that orders stabilize because it's very contrary to what we’re seeing, hearing from other companies report, including many industrial companies? Because last time, you had said that you expected -- although order cancellations were very small, you expected them to climb in the current quarter. So I would love to get a little bit more color on that. And then a real quick tactical one on lead times. Where are the lead times now? Prashanth Mahendra-Rajah : Sure. Yes. Let me just make a comment on cancellation. So we provided cancellations as a metric that we watch in the third quarter because we wanted to give everyone some context that we saw an inflection happening with orders. So it was in the spirit of transparency. However, I don't want to get into a pattern of reporting cancellation data every quarter. So if it was something meaningful, we would have called it out, which we didn't. So you can read that for what it is. I would say that unlike others in the industry, we are proactively analyzing our backlog and working with customers to remove orders that they no longer want given the rapidly changing environment. So this strategy for us is to seek out cancellation. It helps us align our backlog with current demand, and it really gives us better visibility into where the supply needs and what we need to build. So that has increased our confidence in the quality of the backlog we have. It is still -- the coverage is out still over a year, but it is down sequentially. And so while we're always mindful that there can be some continued noise in that backlog, we feel pretty good about both the guide and as we mentioned, the near term. Vincent Roche : Yes. I think the diversities, well, Ambrish, of the business in general is stronger than it's ever been. We're getting benefit. We're winning share in the power management market, that sector of our portfolio. And I think if you look at where we are in the Automotive sector, where we're getting a very strong tailwind from the electrification of the vehicle. In fact, we're gaining a lot of share in general, I think, within in-cabin and the electric vehicle. So I think we've got some tailwinds that are transcending the macro cycle here as well. The only part of the business I would say that has a cyclical timber to it now is the Consumer area, where we have seen kind of the normal pattern there at the -- which happens at the tail end of the year. Michael Lucarelli : And the question on lead times Ambrish. The lead times actually in the quarter, they have come down. I would say they're still extremely high and much higher than we want them to get. And Prashanth talked about how he wants to -- how he -- or we want to increase our inventory to bring down those lead times, but we have some products that are on time and some products that are lead time to 52 weeks. So lead times have come down overall sequentially from 3Q to 4Q, and that's reflected in kind of our outlook, our backlog, cancellations, everything that we gave you. Operator: The next question comes from Stacy Rasgon with Bernstein. Stacy Rasgon : I had a quick housekeeping question and then a broader one. The housekeeping question, you had an extra week in Q1 '18. So Q1 '23 would be five years later. Is there an extra week in the guide at all? And on the broader question, you talked about some of the OpEx levers that you have. I think last quarter, you talked about like in a 15% revenue down year, you could keep gross margins above 70. I guess the question is do you still believe that? And what would OpEx do in a scenario like that? What are some of the levers you would pull? Michael Lucarelli : Stacy, I'll do the housekeeping. No, I guess our outlook is very, very strong, given you thought it would be a 14-week quarter, it's not. Our first quarter in '23 is a 13-week quarter. Our next 14-week quarter will be in 2024. So to repeat the outlook for 1Q is a 13-week quarter. Prashanth Mahendra-Rajah : Okay. And I think your question really is on the downturn scenario analysis. I'll just -- I'll restate that, Stacy. We've covered that a few times, but we put our gross margin floor out there at 70%, and we did that because we have confidence that we have the levers, given the flexibility of our hybrid manufacturing model and the resiliency of our business that it's unlikely that we're going to pass through that. So we’ve tested that at a down 15%. And what we've shared with folks in the past is that a down 15% is quite comfortable that we can stay north of that 70% and the OpEx levers for us would be the -- about 80% of our OpEx is fixed or less variable in nature, which leaves us about 20% on the levers that we can work with to ensure that we keep operating margins north of 40%. I will say that for 2023, our commitment is -- and as Vince often says, we run this company for the long term. So we are committed to continuing to invest throughout the course of '23. We'll, obviously, be mindful of the environment. And if we see a change that warrants us to take action, you can count on us to take action but we -- at least for the next quarter, to expect us to continue to make the right decisions for the long-term health of the business. Stacy Rasgon : It sounds like OpEx ticks up a little bit into Q1 as well, just based on what you just said? Michael Lucarelli : You read it well, Stacy. Operator: The next question comes from William Stein with Truist Securities. William Stein : I'm hoping to hit on the inventory question yet again. You've done a very straightforward, good job of explaining to us what's going on in your own inventory. And it sounds like distribution is still below your target even though on their balance sheets across all their suppliers, it looks like they're elevated. But we've seen other parts of the supply chain, in particular, the manufacturing services companies, which I imagine are a big percentage of sort of your counterparty sales on transactions. And I'm wondering to what degree you've scrubbed that half channel, half customer, however you want to look at it, for inventory that could hurt demand going forward? Prashanth Mahendra-Rajah : Thanks, Will. Great question. Let me -- I'll -- let me do the easy part of that, and that is, sell-in is essentially equal to sell-through. So from a channel standpoint, we're well aligned and our channel partners are not building inventory. I made the comment that we're holding some finished goods on our own balance sheet. From a customer standpoint, I think Vince has had a lot of conversations with customers. So I'm going to pass to him to talk about what he's hearing from them. Vincent Roche : Yes. I don't think our customers are in the mode of building safety stocks. There are mismatches, I think. There's the well-described golden screw problem. It's probably a base in compared to where it was six months ago, but I don't think customers -- there's no major inventory building going on right now. And I think our customers are doing their best to match their orders and the product supply to be able to create finished goods. So they're not there yet. I think there is still some unserved demand that customers are trying to fulfill. So -- but we're working very closely with our customers. As we've said, we take our signals from sell-through, and we're working with our customers diligently across all 125,000 of them, big and small, to make sure that we get the best match between what they need and what we're able to deliver. And what I'm hearing in general is that, yes, we haven't serviced all the demands that all the customers have needed. But in general, we've been very transparent. Our customers are very pleased with our customer service. And I think it positions us very, very well coming out of the supply crunch to be able to deepen our engagements with our customers and -- both on the R&D side as well as the supply chain side. And customers are increasingly interested to partner with companies like ADI on both of those dimensions, and we're ready. Prashanth Mahendra-Rajah : And we're seeing in the pipeline -- we're seeing it in the pipeline growth. Michael Lucarelli : And we go to our last question, please? Operator: The last question today comes from Toshiya Hari with Goldman Sachs. Toshiya Hari : I had one quick housekeeping question and then another broader question. In terms of the housekeeping question, I was curious what did pricing do in fiscal year '22 on a pro forma basis? I think the business grew, what is it, around 25% pro forma. How much of that was pricing? And as you think about fiscal '23 or calendar '23, is the expectation for foundry costs to increase in the out-year as well? And then my broader question is probably for Vince. As you think about the full year '23, based on your backlog, based on your design wins and customer conversations, which end markets or applications are you most excited about in terms of contribution to growth? I realize you run a diverse business, and that's the beauty of ADI. But if you were to single out a couple, where your expectations are the highest, which ones would they be? And which end markets or applications would you be most worried about? Prashanth Mahendra-Rajah : Sure. Thanks, Toshiya. Let me take the first one quickly. So for '22, growth was fairly balanced and about half of that is coming from ASPs. But I do want to emphasize something that we've said over the course of all of '22, we passed cost through to customers. We did not use that environment to raise our gross margins. That was how we did the calculation of how much price to pass on to a customer was based on the input costs that were relevant to those customers. So with that, I'll let Vince take the more interesting part. Vincent Roche : Yes. Thanks, Prashant. So yes, I think in terms of '23, the markets that have been performing very, very well for the company over the last couple of years, particularly Automotive, which we've already talked about; the electrification of the vehicle, we're very, very well positioned there. And we're winning a lot of share in the in-cabin electronics as well, the new display systems, which are very, very complex. The dashboard displays need a lot of very, very clever power electronics. So we're well positioned. From an Industrial perspective as well, digital healthcare has been growing at the company in double digits for over the last 7 years or thereabouts. We expect to see that continue. Also, aerospace and defense, that's likely to be a very brisk business. It's performing well for ADI now, and I believe, at least for the next 5 years, we will see stellar growth in that area. And energy, our energy and sustainability businesses are also beginning to really go on the uptick. So where am I concerned? I'm not really concerned about the business in general, given the diversity that we have, diversity of customers, products, applications. 5G, perhaps, we'll see what is likely to be weakness in Europe, offset by growth in India, growth in ORAN, steadiness in the U.S., and that kind of summarizes how we think about things. Michael Lucarelli : Thanks, everyone, for joining us on the call this morning. Prashanth and I will be at CES this year hosting meetings. We also have a booth on the showroom floor where we have technology demos across auto, healthcare and consumer. We hope to see you there. And with that, have a great Thanksgiving, and thanks for joining the call. Operator: This concludes today's Analog Devices conference call. You may now disconnect.

Operator: Good morning, and welcome to the Analog Devices Third Quarter Fiscal Year 2022 Earnings Conference Call, which is being audio webcast via telephone and over the web. I'd like now to introduce your host for today's call, Mr. Michael Lucarelli, Vice President of Investor Relations and FP&A. Sir, the floor is yours. Michael Lucarelli: Thank you, Matt, and good morning, everybody. Thanks for joining our third quarter fiscal 2022 call. With me on the call today are ADI's CEO and Chair, CEO Vincent Roche; and ADI's CFO, Prashanth Mahendra-Rajah. For anyone who missed the release, you can find it and relating financial schedules at investor. analog.com. Now on to the disclosures. The information we're about to discuss includes forward-looking statements, which are subject to certain Vincent Roche; and ADI's CFO, Prashanth and our periodic reports and other materials filed with the SEC. Actual results could differ materially from the forward-looking information as these statements reflect our expectations as of the date of this call. We undertake no obligation to update these statements, except as required by law. Our comments today will also include non-GAAP financial measures, which exclude special items. When comparing our results to our historical performance, special items are also excluded from prior periods. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures and additional information about our non-GAAP measures are included in today's earnings release. Please note, we've also published our annual ESG report last quarter titled Future Forward. You can find it on the IR web page. And with that, I'll turn the call over to ADI's CEO and Chair, Vince. Vince? Vincent Roche: Thank you, Mike, and good morning to you, all. Well, I'm pleased to share that we executed very well amidst a dynamic macro backdrop. We delivered another quarter of record results, driven by continued operational excellence, strong financial discipline and resilient demand for our diverse portfolio of innovation-rich products. Revenue was $3.1 billion, up 24% year-over-year on a combined basis and above the midpoint of our outlook. Strength was broad-based with double-digit growth in every end market. Our third quarter profitability reflects ADI's innovation premium and strong operating leverage with gross and operating margins of 74% and 50%, respectively. Adjusted earnings per share of $2.52 finished at the high end of our outlook, marking another new high. I'm exceptionally pleased with our results, and I want to thank our employees for their continued hard work and dedication to our success, and importantly, to the success of our customers. At ADI, innovation is ingrained in our culture, fueled by an unwavering commitment to robust R&D investments. Over the last 12 months, we've invested over $1. 7 billion in R&D. A key facet to our innovation-driven success is our dedication to extensive and deep customer engagements, which enables us to collaborate with them in solving their toughest problems. Now I'd like to share some recent customer highlights. In automotive, we reinforced our market-leading position in BMS with wins at two premium European auto manufacturers. One of these wins was with our wireless BMS solution. This marks the fourth OEM to adopt wireless BMS as customer interest continues to build for this unique technology. In sustainable energy, we announced a design win with Enel Group on the Quantum Edge device used to digitally monitor electric grids. ADI's unmatched precision measurement capabilities are critical to creating a more resilient and flexible grid to help advance efficient electrification globally. In health care, the recently released wireless hospital monitoring system by GE Healthcare in Europe uses ADI solutions across signal chain, power, RF MCUs and sensors. This wearable system enables wireless continuous monitoring to detect patient deterioration earlier, helping to improve outcomes. Today, I'd like to profile our $1.5 billion-plus consumer franchise, a business that plays an important role in our long-term profitable growth strategy. Given the recent negative data points surrounding the consumer end market, one may wonder why highlight this market now. But that's just the reason our consumer business is built differently. In the third quarter, we posted our seventh consecutive growth quarter. And while we are not immune to macro slowdown, we have aligned this business to the high end of the market where performance really matters and into applications where our differentiation is truly valued. The composition of our consumer franchise is indeed unique. Approximately 30% of our revenue comes from long life cycle prosumer applications, including next-generation conferencing systems, professional audio/video and home theater. The remaining revenue in consumer relates to portables, including fast-growing wearables and hearables as well as premium smartphones. Taking a step back, over the last five years-plus, we have reconfigured our consumer business to increase diversity across customers, products and applications to better drive growth and limit volatility while enhancing profitability. The addition of Maxim further enhances our diversity and expanded our portfolio. Over this time, we've increased our product SKUs to just over 10,000 and expanded our customer count to more than 3,000. Importantly, the composition of this business is quite similar to our B2B markets, with no single product contributing more than a couple of percentage points to total ADI sales. The velocity of innovation in the consumer market is appealing. It allows us to accelerate technology development and commercialize solutions quickly at scale. Over time, we take these breakthrough solutions into other markets to create new waves of growth and drive strong profitability and cash flow. For example, we have leveraged our consumer audio expertise into the automotive market. This capability was demonstrated at our Investor Day where we showcased an electric vehicle with Dolby Atmos that uses our Shark DSP and software that was first proven in the consumer business. Additionally, we've also leveraged R&D investments from our core franchises into the consumer market. To that end, our high-precision converters and industrial instrumentation, for example, have been repurposed to solve similar challenges for stabilization in smartphone compass and pressure sensing in wearables. Not only have we created a highly diverse and profitable business but also one that is aimed at key growth drivers that position us to grow at a high single-digit rate over the long term. For example, our prosumer growth has been revitalized as companies implement future of work plans that encompass more immersive enterprise video conferencing. Here, the breadth of our portfolio across DSP, analog, mixed signal and power management enables us to solve the entire customer challenge from high-bandwidth connectivity to video resolution and sound quality. And turning now a moment to the portables market. In hearables, we shift into the majority of premium wireless stereo earbuds. Our newest offerings include software-augmented hearing algorithms and optimized power that reduces size and improves audio fidelity while increasing our value per system by over 3 times. In wearables, we're a leader in personal wellness products with our sensing solutions designed into over 50% of products today. There is a convergence of these personal wellness products and clinical-grade vital signs monitoring solutions that could unlock new opportunities for ADI. And in premium smartphones, we're expanding our share and content at key customers, which is providing us additional diversification and stimulating new growth vectors. An emerging opportunity is the metaverse. ADI's breadth of hardware, software algorithms and domain expertise gives us an ability to provide complete subsystem solutions. While we're still in the early days, of course, momentum is building, and we have design wins in multiple next-generation AR/VR headsets. Across all these consumer applications, power management is becoming ever more critical. Customers are adding more features into smaller spaces, while consumers are demanding longer battery life. Maxim doubled the size of our low-power portfolio and increased our consumer power SAM by over $1 billion. We're already beginning to see the cross-sell benefits of our complementary customer bases and synergistic portfolios with wins in both wearables and conferencing systems. So in summary, I'm very encouraged with the strides we've taken to reignite growth in our consumer business and with a record opportunity pipeline and significant synergy potential, I believe we're in a position to deliver consistent growth over the long term. Now before passing over to Prashanth, I'd like to make some comments on the current business environment. Obviously, the macro backdrop is dynamic and it's clear that we're at an inflection point. Economic conditions are beginning to impact demand with orders showing -- orders slowing later in the quarter and cancellations increasing slightly. Prashanth will provide additional details on these dynamics in his remarks. ADI successfully navigated macro challenges many, many times before in our 57-year history. We've created a premier analog franchise with an unmatched diversity of products, customers and applications. And we've invested in a hybrid manufacturing model that better adapts to demand fluctuations. These characteristics instil a resiliency into our business to mitigate market weaknesses, sustain profitability and enable investment in our business through economic cycles to focus on playing our long game. And with that, I'll hand it over to Prashanth. Prashanth Mahendra-Rajah: Let me add my welcome to our third quarter earnings call. My comments today, with the exception of revenue, will be on an adjusted basis, which excludes special items outlined in today's press release. Third quarter revenue of $3.1 billion finished above the midpoint of our outlook and marked our sixth consecutive quarterly record. If we look at third quarter end market performance, industrial, our most diverse and profitable end market, hit another all-time high and represented 50% of growth -- excuse me, 50% of revenue. Growth was broad-based with each of our major applications increasing sequentially. Industrial revenue has now grown more than 20% year-over-year for 7 straight quarters, underscoring ADI's strong position and secular content growth across applications. Automotive, which represented 21% of revenue, achieved another record, increasing 28% year-over-year. The better mix of higher-content premium vehicles, combined with our growth engines of BMS, GMSL, A2B and better value capture is driving our outsized growth versus SAAR. Communications, which represented 16% of revenue, achieved a quarterly record with strong year-over-year growth in both wireless and wireline. Sequentially, wireline outpaced wireless with growing demand for our optical and power portfolios as carriers and hyperscalers invest to meet the ever-growing demand for data. And lastly, consumer represented 13% of revenue and has now grown year-over-year for 7 consecutive quarters. As Vince highlighted, the diversity and growing design momentum across portables and prosumer is enabling us to grow despite the consumer market slowdown. Now on to the rest of the P&L. Gross margin was 74. 1%, up 250 basis points year-over-year, driven by higher utilization, favorable mix and synergy capture. OpEx in the quarter was $747 million, which reflects a full quarter of higher-than-normal merit increases. Operating margin increased 650 basis points year-over-year, finishing at 50.1% toward the high end of our outlook. Non-op was $48 million and the tax rate for the quarter was 13.2%. All told, EPS came in at a record $2. 52, up 47% versus the third quarter of 2021. On balance sheet, we ended the quarter with over $1.5 billion of cash and equivalents. Days of inventory increased to 129, while channel inventory remains below the low end of our target range of 7 to 8 weeks. For cash flow, CapEx for the quarter was $165 million and $526 million over the trailing 12 months, just under 5% of revenue. We continue to expect elevated CapEx investments through 2023 to support the strategic expansion of our hybrid manufacturing model. And these investments will strengthen our resiliency and support our long-term growth outlook of 7% to 10% CAGR. Over the trailing 12 months, we generated over $3.7 billion of free cash flow or 34% of revenue. Included in our free cash flow are onetime deal-related costs which amount to about 3% of revenue. With the intra-quarter volatility, we opportunistically increased repo activity to $906 million. And after approximately one year post the close of Maxim, we've repurchased $4.4 billion worth of shares, putting us on track to exceed our $5 billion commitment by the end of fiscal '22. Including dividend payments, we've returned approximately $6 billion to shareholders over the last 12 months or more than 6% of our market cap. As a reminder, we target 100% free cash flow return. We target to allocate 40% to 60% of our free cash flow to support a 10% dividend CAGR through the cycle, with the remaining cash used for share count reduction. Now before we move to the outlook, I want to provide some additional details around demand. In third quarter, our order book remained strong and backlog increased to a new record, stretching well into mid-2023. However, orders moderated later in the quarter, and as a result, book-to-bill was down from a quarter ago but still well above one. By market, we are seeing strength persist in both industrial and automotive, which together represent over two-thirds of our sales, while consumer and comms were a bit softer. We also saw a modest increase in cancellations and was not specific to any end market or geography. Given these dynamics, coupled with the macro backdrop, we believe it's prudent to take a more cautious stance. As such, we are only forecasting slight sequential revenue growth to $3.15 billion, plus or minus $100 million, despite bookings, backlog and higher supply that would all suggest stronger growth. At the midpoint, we expect all end markets to grow quarter-over-quarter. Op margin is expected to be 50.3%, plus or minus 70 bps. Our tax rate is expected to be 13% to 14%. And based on these inputs, adjusted EPS is expected to be $2. 57, plus or minus $0.10. More broadly, while the macro backdrop is dynamic, our business has several aspects that position us quite well to manage further headwinds. These include our diverse end market exposure, coupled with strong secular drivers that will help buffer our top line. The flexibility of our hybrid manufacturing model gives us confidence in maintaining our 70% gross margin floor. And we also have several OpEx layers to support our industry-leading margins and maintain a solid return of cash to our investors. So in closing, my confidence to our path of $15 of EPS in the next five years remains high. Let me now give it back to Mike for the Q&A. Michael Lucarelli: Thanks, Prashanth. Let's get to the Q&A session. (Operator Instructions) With that, can we have our first question, please, Matt? Operator: [Operator Instructions] Our first question will come from Vivek Arya with Bank of America Securities. Please go ahead. Vivek Arya: I just wanted to clarify how much conservatism is in the Q4 outlook. And then a little bit longer term than that. What happens to the pricing lever as you start to see these bookings start to decelerate? Is pricing holding firm? Is it flat or down as customers start to think about next year? Prashanth Mahendra-Rajah: Yes. Thank you for the question, Vivek. Let me take the first part of that, and then maybe I'll let Vince speak to the pricing. So we've been talking for a couple of quarters now that we were expecting a meaning full increase and our ability supply in the fourth quarter and we’ve been building that with the installations of equipment to that we’ve been having over the course of the year. So our supply -- our ability supply even access of the guide that we put out there. In addition, our backlog actually increased sequentially from -- into the third quarter to a new all-time record. And given kind of the strength in the backlog, the book-to-bill was still above one and increased supply, it's very logical we could print a bigger number. Having said that, we are very aware of the macro environment and a bit more softening in order activity that we saw towards the tail end of the quarter. So that's why we kind of held back a little bit on the guide to ensure that if this order softness does continue, we're not disappointing. Vince, do you want to address the pricing question? Vincent Roche: Yes. Thanks, Vivek. Yes, so I think first and foremost, we are seeing tremendous stability. I don't expect to see any downward pressure on prices even in a recessionary environment. I think first and foremost, our products reflects an innovation premium for the kind of value that we deliver to our customers. Now we're never the long pull in the pricing tent either in the customer's bill of material. The other thing I would say, particularly in the high-performance analog space, the substitution costs are very, very high. So the disruption to a customer system design way, way outweighs considerations for price reduction. So where we obviously compete most intensively on a price basis is to get the original socket, but we have long life cycle products with tremendous stability, very, very high substitution costs. So my sense is that pricing will remain very, very steady through the cycle. Operator: Our next question will come from C.J. Muse with Evercore. Christopher Muse: I guess I'd like to focus on the slowdown in orders that you saw at the tail end of the quarter as well as the cancellations that you highlighted. Any more kind of detail you can provide there as it relates to subsegment of end markets, geography? Any color would be greatly appreciated. Prashanth Mahendra-Rajah: Yes. Thank you. Thanks, C.J. Let me maybe talk about kind of the bookings momentum in a couple of different pieces. So first, third quarter results, where we're clearly broad-based strength, all end markets were up quarter-over-quarter and double digits year-over-year, so our sixth consecutive record. The only geography/market that was down year-over-year was China consumer. But that's a very small exposure for ADI, low -- very low exposure for ADI, low -- very low the third quarter, orders were up. Again, as I mentioned, strongest trends were industrial and auto, which represent about 70% of the business. Comms and consumer weaker, but again, we increased our backlog to another record, another new all-time high, and that covers us well into '23. Where we saw that change in demand was really cancellations ticked modestly higher. And I do say modestly. It is -- we want to be fully transparent on this call, so we're calling out but I wouldn't really put too much focus on the cancellation number. But again, in the spirit of transparency, we want to share that we did see that change in the demand profile. And we also saw that the channel sell-through began to moderate towards later in the quarter. So that is the sell-through from the channel or POS began to soften a bit versus what we were originally expecting. Overall, the book-to-bill was still above parity but it was definitely lower than it was a quarter ago. So as we set that guide for fourth quarter, given the uncertainty, changing trends in our business, we thought it's prudent to take a more cautious stance and therefore, we're guiding up only slightly on a quarter-over-quarter basis despite, as I mentioned in answering Vivek's question, despite having very strong backlog coverage, good bookings and better supply, which would all suggest higher growth. Operator: Our next question will come from Ambrish Srivastava with BMO Capital. Please go ahead. Ambrish Srivastava: I just had a question, Prashanth, on the floor that you have laid out for the gross margin, which is way above where margins bottomed out at in the prior real cycle and connection prices. And I'm asking this because I get this question a lot. Hey, what's the downside EPS projection for ADI? And so if you could please help us understand kind of what are the underlying assumptions behind that as it relates to utilization inventory. And then more importantly, what are you assuming for revenues to go down to hit that level? Prashanth Mahendra-Rajah: Sure, sure. Thank you, Ambrish. So maybe let's start with a reminder that this company is structurally more profitable than we ever have been. The addition of Maxim gives us the benefit of scale, and we have the benefit of that hybrid manufacturing model, which really gives us that flexibility to manage our production utilizations by being able to notify our supply chain partners in the event we need to, with essentially a quarter's notice, to bring the outside supply number down and focus on keeping internal utilizations higher. As a result of that, we feel very confident that kind of through the downturn of a cycle, we can maintain that 70% gross margin floor, which from an investor model standpoint, is a unique metric that we put out there to give a floor. In thinking about a downturn scenario, and again, I want to emphasize, this is a projection to help investors model what it could be, not in any way a forecast of what we think is coming at us. But from a revenue standpoint, we have this great diversification, 75,000 products, 125,000 customers and thousands and thousands of applications, which are aligned to numerous secular growth markets. We have exposure to much stronger markets in a down cycle like aerospace and defense and health care, which are not going to be as cyclical. On the gross margin side, I mentioned this flexible manufacturing model that allows us to really help manage utilizations. And then we have a very accordion-driven variable compensation program, which allows us to moderate OpEx. So if we were to think about a downside scenario that was in a 15% down revenue market, we believe op margins would still have a 4 handle on them, probably be in the low 40s and gross margins would probably be, again, above 70, but probably in the low 70s. Operator: Our next question will come from Stacy Rasgon with Bernstein Research. Please go ahead. Stacy Rasgon: I wanted to delve a little bit more into the bookings and the order. So was it like bookings before were 150% and now they're 130%? Like where is that book-to-bill actually coming in? How far above one is it? And I guess what are you assuming happens to the backlog as we go into next quarter? Are you assuming that, that backlog gets drawn down at all or are you assuming it goes up? Or just what are the assumptions around that embedded in the guidance? Prashanth Mahendra-Rajah: Yes. So let's see what can we say here, Stacy. So for the last couple of quarters, excluding the third quarter, book-to-bill was -- actually, you can do the math because you can see how the backlog has increased so substantially. It between a one and a two, right? We're now still above one but we're at the lower end of that. Now industrial and automotive, strong, and that helped to compensate for -- I think I'm going from memory here, my consumer was just about flattish and comms was just a hair below. Stacy Rasgon: What are you assuming in the next quarter for the backlog? Michael Lucarelli: Yes, sure. I mean, the backlog is not that indicative of what happens for next quarter because it goes out into '23. So as you see these cancellations, this is a very small percent of the backlog and that's really into '23. So our assumption is backlog probably increases again because book-to-bill at an enterprise level is still above one. It's really not going to affect the demand for the fourth quarter or probably even the first quarter at this point. And as Prashanth said, I say investments bookings used to be way above one. Now they're nicely above one. So we're still booking above what we're shipping. So what would cause us not to come in kind of in line with supply, right? Why would we -- why would -- for the last couple of quarters, our revenue number has been purely a function of supply, and why could that not be the case for the fourth quarter? Why that could not be the case is if customers say, "We'd like to reschedule the timing and we choose, in the spirit of customer satisfaction, not to push it to them although they've ordered it and give them that flexibility to move out." And it could be, as I mentioned, from the channel standpoint, if the channel looks like inventory in the channel is building at a level that we don't think is healthy for the business. And we choose to keep that inventory on our books to give us more flexibility to make sure that we can match customer demand better. Michael Lucarelli: I have one thing to that, that's important point Prashanth brought up on the channel is that 31:50 assumes really no channel inventory build. That's a sell-through number that we're guiding to. Prashanth Mahendra-Rajah: Yes. Thank you, Mike. Michael Lucarelli: That's four different parts to that answer, Stacy, so we'll go to the next question. Operator: Our next question will come from Blayne Curtis with Barclays. Please go ahead. Blayne Curtis: I just want to follow up on a part question in terms of just where you're seeing these cancellations. You said consumer and comms are weaker. I think you just said comms book-to-bill is below one. But I'm just trying to understand in the comments of I think channel sell-through was weaker as well. Can you dial us in, is it isolated to certain segments? Or is all of these comments kind of broad-based in terms of where you're seeing the cancellations and the weaker sell-through? Prashanth Mahendra-Rajah: Everything is broad-based, and we -- I think that if we have overemphasized cancellations on this call, that's probably a true statement right now, is I don't want to mislead folks to think that cancellations are a meaningful concern. But again, in the spirit of transparency, we're saying that they were up modestly. Michael Lucarelli - Head of IR: But everything we've talked about has been pretty broad-based. Prashanth Mahendra-Rajah: And on comms, I just -- maybe just one follow-up is this has always been a lumpy business. We know that the wireless guys have spent a big chunk of money buying spectrum. That spectrum has to be deployed, which will require the 5G hardware that we have the market share leading position on. So we're highly confident. This is a pretty of timing issue. Operator: Our next question will come from Tore Svanberg with Stifel. Please go ahead. Tore Svanberg: And congrats on another record. As we sort of move through this software environment, how are you thinking about the three big cost levers, utilization, OpEx and CapEx going forward? Prashanth Mahendra-Rajah: Okay. So I think we've talked through some of that, Tore, but from at least certainly utilization levels, we're going to continue to see relatively good utilization levels across our internal factories for a few reasons: one is the benefit of the hybrid model is that we can bring more production in-house; second is that die bank levels are at very low levels, and we do need to get those die bank levels back to a healthy point. Die bank is an extremely cost-efficient place for us to hold inventory, particularly when you have 75,000 SKUs. You can hold it sort of think of it as $0.10 on the dollar. So it is very economically efficient and allows us to improve customer satisfaction later on. From an OpEx standpoint, as you've seen in the past, we have a very accordion-driven variable compensation program, which automatically unwinds if the financial performance of the company drives it to. And I think what's unique to ADI versus perhaps some of our peers is we have the cost synergies from Maxim, which are independent of the economic environment. From a CapEx standpoint, expect us to be -- it is business as usual. We had committed at the Investor Day to a higher level of CapEx in '22 and '23, which is necessary to add the supply needed to hit our long-term model of 7% to 10% growth, which we are very much committed to, and that is on track. Capital spend for the current quarter -- sorry, for the current year, maybe a bit below what we expected. That's a consequence of revenue coming in stronger, so bigger denominator and also just a little bit of delay in the receiving some of that equipment, but all of that will drive through in 2023. Vincent Roche: Yes. Sorry, Tore. On the OpEx side, we intend to -- we've been spending R&D at record levels. We intend to continue to ensure that we have properly funded all our critical programs. Innovation at a very, very important part of the value creation story of ADI. We are -- also we've been upping actually the spend in our go-to-market activities as well. So both of those, we will continue to keep our pedal to the metal on. Operator: Our next question will come from Toshiya Hari with Goldman Sachs. Please go ahead. Toshiya Hari: I wanted to ask a question on the supply side sort of the equation. Three months ago, you had talked about significant tightness, whether it be your internal supply or external foundry supply. I'm just curious if you're starting to see signs of supply easing. I guess test was a big bottleneck for internal supply 3, 6 months ago. Any changes there? And in terms of foundry wafer supply, again, any signs of easing? And kind of related to that, there have been some headlines about foundry wafer pricing increasing again in late '22 going into '23. Is that sort of the indication you're getting from your suppliers? And if so, are you comfortable that you'd be able to pass those through to your customers? Vincent Roche: Well, I think the last part of your question, first, on pricing increases, I believe that we are in the post-Moore's Law era and in a period of sustained structural inflation in this business for many, many years ahead. I think it's true to say that supply -- we've been increasing, of course. We've invested strongly in our own manufacturing capabilities to be able to secure supply and increase supply actually across the four wafer fabs inside ADI. So yes, supply is improving there. And thematically as well as supply has been improving actually right through the pandemic, right over the last couple of years from our subcontractors as well. So I think there is a lightening of supply across the board. Prashanth Mahendra-Rajah: On pricing, maybe I'll just restate what we said in the past. We are not using this environment to take advantage of our customers, and we are really looking to maintain our gross margin model. And the rationale on that gross margin model, which is important to us, is we know, as Vince mentioned, we spend at a healthy clip on R&D to develop highly innovative products, and we need to capture that innovation premium from our customers. So as our costs may increase, it's important that we continue to capture those cost increases back with stable margins because it's a reflection of the value we're bringing to our customers. Operator: Our next question will come from Harlan Sur with JPMorgan. Please go ahead. Harlan Sur: Just one clarification. So I just wanted to verify, so you guys said that currently, quarter-to-date, your book-to-bill is still greater than one. That's my clarification question. Then my main question is distribution represents about 60% of the team's revenues, right? And it looks like just the inventories are still below your target levels of 7 to 8 weeks. Obviously, the eventual catch-up should provide you guys with some cushion if the environment continues to weaken further. But that being said, it still feels like auto and industrial demand is still quite strong. So given your outlook, like what's your view on getting to target levels on channel inventories over the next few quarters? Prashanth Mahendra-Rajah: Yes. Thanks, Harlan. Your -- first of all, say that you recapped it correctly, and there is some opportunity for us to continue to grow our revenue by bringing distis levels back to our healthy target level. But I want to emphasize that the guide, as Mike mentioned, the guide for the fourth quarter is on the basis of POS equals POA. One thing that ADI has been very consistent about for many years is we run our business on POS. So we need to look at end demand, and end demand drives how we end up manufacturing, and we want distis to be able to help us with access for those products, but we are not looking for distribution to be an excess buffer of inventory. Michael Lucarelli: And the one other part of the question that you had, Harlan, was book-to-bill. Yes, for the quarter, book-to-bill was still well above one at enterprise level. That was driven by industrial and auto with the two strongest markets, while comms and consumer, we'll call about flat, around one. And with that, may we have our last question, please? Operator: Our last question will come from Ross Seymore with Deutsche Bank. Please go ahead. Ross Seymore: Vince, a lot of questions about near-term cancellations, bookings, backlog, all those sorts of things. I wanted to ask a slightly longer one. You mentioned in answer to an earlier question about we're in a post-Moore's Law world. We're going to have an inflationary environment rather than deflationary. Can you just talk a little bit about how the customer conversations have changed? Over the last few months, we've heard a lot from last year, a lot from companies saying it's more of a partnership, longer lead times, et cetera, long-term supply agreements, those sorts of things. Do you still see that behavior continuing? Or do you believe that's a little bit more of a reflection of cyclical tightness and you expect some of that to unwind as well? Vincent Roche: Yes, it's a very good question. I've had a lot of conversations, Ross, over the last couple of years with CEOs of the biggest enterprises in the world of information. And what I can tell you for sure is that everybody wants to get closer to their key suppliers when it comes to aligning product roadmaps for the long term. Particularly companies that are perceived as being critical for their innovation processes. So I can tell you that continues. And the other side of the equation is everybody wants to understand at the customer side of things, what do they need to do to secure supply for the long term? And what kind of arrangements that they need to put in place? What kind of information flows? What kind of models that we develop between each other? So that continues. And I think it has been firmly established now that semiconductors are the bedrock of the modern -- of modern socioeconomic life. So the conversations continue intensively, I would say, and I expect that to continue well into the future. Michael Lucarelli: And with that, thanks, everyone, for joining our call this morning. I did want to flag that during these more uncertain times and consistent with our commitment to transparency for our owners, we'll be even more available. Vince and Prashanth will be in New York, L.A., the Bay Area, Chicago and across Europe in the next quarter, so it's a busy quarter coming up for us. Please reach out to myself or the IR team if you'd like to be notified when we're in your neighborhood. And with that, thanks for joining us and your continued interest in ADI. Operator: This concludes today's Analog Devices conference call. You may now disconnect.

Operator: Good morning, and welcome to the Analog Devices Second Quarter Fiscal Year 2022 Earnings Conference Call, which is being audio webcast via telephone and over the web. I would like to now introduce your host for today's call, Mr. Michael Lucarelli, Vice President of Investor Relations. Sir, the floor is yours. Michael Lucarelli: Thank you, Katrina, and good morning, everybody. Thanks for joining our second quarter fiscal 2022 call. With me on the call today are ADI's CEO and Chair, Vincent Roche; and ADI's CFO, Prashanth Mahendra-Rajah. For anyone who missed the release, you can find it and relating financial schedules at investor.analog.com. On to the disclosures. The information we're about to discuss includes forward-looking statements, which are subject to certain risks and uncertainties as further described in our earnings release and our periodic reports and other materials filed with the SEC. Actual results could differ materially from the forward-looking information as these statements reflect our expectations as of the date of this call. We undertake no obligation to update these statements, except as required by law. Our comments today will also include non-GAAP financial measures, which exclude special items. When comparing our results to our historical performance, special items are also excluded from prior periods. Reconciliation of these non-GAAP measures to the most directly comparable GAAP measures and additional information about our non-GAAP measures are also included in today's earnings release. And with that, I'll turn it over to ADI's CEO and Chair, Vincent Roche. Vince? Vincent Roche : Thank you, Mike, and a very good morning to you all. Well, I'm very pleased to report that ADI delivered another quarter of record revenue, profitability and earnings, driven by continued insatiable demand for our products, strong operational execution and accelerated synergy capture. Moreover, amidst a dynamic macro environment, we're operating from a position of remarkable strength, supported by our record backlog, robust bookings and ongoing capacity expansions, which position us favorably as we enter the second half. Now moving to a summary of our results. Revenue was $2.97 billion, above the high end of our outlook and up 28% year-over-year on a pro forma basis. Strength was broad-based with all segments up double digits year-over-year. Impressively, adjusted gross margin expanded to 74% and operating margin to 50%. Adjusted EPS was $2.40, exceeding the high end of outlook and increasing over 50% from the year ago period. Overall, I'm very excited with our performance and our team's outstanding execution. Today, I'd like to reinforce what we shared at our Investor Day around how our markets are evolving and how we're investing to solve more of our customers' problems while also improving on our business model that's both rich with growth opportunities and, indeed, resiliency. The next wave in the evolution of the ICT sector is the nascent Intelligent Edge revolution. It will be characterized by ubiquitous sensing, hyperscale computing and pervasive connectivity, pushing processing and intelligence closer to the edge. Semiconductors are the bedrock enabling this next wave. And ADI, where data is born, is at the center of this revolution. At our core, we're an innovation-driven enterprise over the last decade through both robust organic investments and strategic M&A. We've built the industry's broadest and highest performance analog, mixed signal and power portfolio. Our offerings span from microwave to bits, nanowatts to kilowatts, sensor to cloud and increasingly from components to subsystems. Our vast arsenal of technologies, along with the deep level of engagement and support we provide our customers, has earned us the number 1 positions in analog, mixed signal, RF and high-performance power. This, coupled with our focus on customer success, awards ADI with an innovation premium that is reflected in our ASPs that are more than 3x the industry average and also industry-leading gross margins. The growing scope of our customers' products is dramatically expanding in complexity and pressuring their product development teams and innovation cycles. To meet these challenges and deliver the next wave of disruptive innovations, we're investing over $1.6 billion in R&D annually. These investments strengthen our broad market franchise and enable us to expand our SAM and vertical applications where more complete solutions are necessary. We achieved this by integrating our core analog technologies with increasing levels of digital algorithms and software. Now let's look at how our technology is intersecting with our markets. Industries like transportation, energy, telecoms, manufacturing and health care are prioritizing digitalization. This is driving new generations of applications and fueling a host of concurrent secular growth trends, and I'd like to touch on just a few now. Starting with automotive. Here, ADI is the market leader in battery management systems, for example, for EVs. Our battery management systems, or BMS, solutions offer customers the highest levels of accuracy, reliability, safety and security. Our wireless BMS solution offers all the benefits of wired but also enables rapid battery pack configurability and cost-effective scaling of our customers' EV fleets. This innovative solution continues to gain traction in the market and adds to our content per system by up to 2x. Moving to communications, where ADI is the market leader in radio signal chains for 5G with a majority share across the ecosystem. Our latest generation transceiver includes a fully integrated digital front end and grows our SAM by 2x. This innovative radio architecture reduces system cost and waste and improves power efficiency. Further, the flexibility of these software-defined solutions allows them to be used across traditional 5G networks as well as an emerging Open RAN and LEO satellite networks. Lastly, health care. We have a number 1 position with dominant share in medical imaging, for example. Subsystems like our photons to bits module are used by the top CT players in the world. Our solution delivers the highest-fidelity images while decreasing radiation dosage. And in the process, it allows us to capture 4x the SAM compared to offering just components alone. In addition to expanding our innovation edge across these secular trends to amplify growth, the Maxim combination creates a $1 billion revenue synergy opportunity for us over the next 5 years. The first opportunity arises from customer cross-selling, leveraging our complementary relationships to pull through our extended portfolio. Second is fusing together the new product road maps of these 2 premier Analog portfolios to push the boundaries of what's possible. And third is power management. Here, the combination with Maxim increases our breadth of power capabilities, creates a more cost competitive portfolio and adds to our engineering talent pool. As a result, we unlocked $4 billion of additional power SAM and look to double our power revenue in the years ahead. The proliferation of the Intelligent Edge and our revenue synergy opportunity gives me great confidence that we can bend the growth curve upwards, moving from our historical mid-single-digit growth rate to our new model of 7% to 10%. Now I'd like to speak a little to the unique resiliency of our business. The diversity of our portfolio is a source of great strength. We shipped 75,000 product SKUs, which support thousands of applications to over 125,000 customers. Notably, 80% of our revenue is derived from products that individually contribute no more than 0.1% of total revenue. And the longevity of our products is unmatched. On average, our products have life spans of a decade or more, effectively delivering recurring revenue streams for decades. It's these characteristics that create a high barrier to entry and an enduring business model. Finally, we utilize a geographically diverse hybrid manufacturing strategy to attain the complexity and fragmentation of the Analog market. This strategy provides us with a broad array of technology and packaging necessary to create innovative solutions from 7 nanometers to 7 micrometers. At the same time this model creates a diverse network of internal and external partners to best manage our operations through economic cycles. As we mentioned at our Investor Day, we're investing in our internal manufacturing operations to build a more robust and cost-effective model. To that end, we're doubling the capacity of our internal factories and adding significant capital to our product test operations. These investments will grow our output this year and into 2023 and increase our swing capacity across our network to over 70% of revenue. So in closing, ADI is a leader in innovating at the edge, and I believe that our best days are still ahead of us as we drive increased value for our customers, shareholders and society. And with that, I'm going to pass it over to Prashanth, who will take you through the financial detail. Prashanth Mahendra-Rajah : Thank you, Vince. Let me add my welcome to our second quarter earnings call. It was great to see and hear from so many of you at our Investor Day last month, and it was also exciting to welcome so many of our customers to demonstrate our technologies in action. As usual, my comments today, with the exception of revenue, will be on an adjusted basis, which excludes special items outlined in today's press release. We printed another very impressive quarter with record revenue, profitability and earnings. These strong results reflect increasing demand for our highly differentiated products aligned to multiple secular trends as well as our ability to leverage our hybrid manufacturing model, offset inflation and accelerate synergy capture. Second quarter revenue of $2.97 billion finished above the high end of our outlook, with every B2B end market exceeding initial expectations. This marks our fifth consecutive quarter of record revenue and our ninth straight sequential growth period. So let's look at the performance by end market. Industrial, our most diverse and profitable end market, represented 51% of revenue and hit another all-time high. We experienced broad-based growth with digital health care, automation, instrumentation and test leading the way, underscoring increasing content and our strong position in these secular markets. Industrial has now grown more than 20% year-over-year for 6 straight quarters. Automotive, which represented 21% of revenue, also achieved another record with all applications growing double digits year-over-year. In BMS, where we hold the number 1 position, our quarterly revenue eclipsed $100 million for the first time. We expect strong growth to persist, given the momentum in the market and our continued design wins. Additionally, our A2B and GMSL solutions, which together make up roughly 20% of automotive, continued on their secular growth path fueled by the digitalization of the automobile. Communications represented 16% of revenue with robust broad-based growth. In wireless, we experienced growing demand across our RF portfolio as 5G deployments, particularly in North America, gained momentum. ADI's latest generation transceiver, which Vince spoke to, is ideally positioned to capitalize on the virtualization trend. In wireline, demand for our optical and power products remained strong as carriers and hyperscalers invest to meet the ever-growing demand for bandwidth. And lastly, the consumer represented 12% of revenue and has now grown year-over-year for 6 straight quarters. This consistent growth is a function of our product and customer breadth, which better insulates us from the typical fluctuations associated with PCs and portable devices. Now on to the P&L. Gross margin was a record 74.2%, increasing 230 basis points sequentially and 330 basis points year-over-year. Favorable product mix, high utilization and revenue growth and synergy fall-through were key drivers of the increase. OpEx in the quarter was $710 million, better than anticipated, owing to faster synergy execution. Record operating margins of 50.3% grew 450 basis points sequentially and 860 basis points year-over-year. At the end of the second quarter, we've realized over $250 million of cost synergies. We look to quickly achieve the remaining synergies and hit our recently increased target of $400 million in savings exiting fiscal '23. Non-op expenses were $41 million and the tax rate for the quarter was 13.2%. All told, adjusted EPS came in at a record $2.40, up more than 50% versus the second quarter 2021. And now on to the balance sheet. We ended the quarter with approximately $1.7 billion of cash and equivalents. Days of inventory increased sequentially to 122 and channel inventory remains below the low end of our 7- to 8-week target. If we look at cash flow, CapEx for the quarter was $119 million and $447 million over the trailing 12 months or 5% of revenue. To support our accelerated 7% to 10% long-term revenue growth outlook, we are strategically investing to expand internal capacity while enhancing the resiliency of our hybrid model. To that end, as we stated at Investor Day, we expect CapEx as a percentage of revenue to be in the high single digits during fiscal '22 and '23 before reverting back to 4% to 6% over the long term. And over the trailing 12 months, we generated $3.2 billion of free cash flow or 33% of revenue. Included in our free cash flow are onetime transaction-related costs amounting to about 3% of revenue. Given the recent market weakness, we accelerated our repo activity to $776 million during the second quarter. This brings our total share repurchase to approximately $3.5 billion since the close of Maxim. And we look to maintain this accelerated buyback pace this quarter and achieve our $5 billion commitment by the end of our fiscal year. As a reminder, we target 100% free cash flow return. We will allocate 40% to 60% of our free cash flow to support a 10% dividend CAGR throughout the cycle, with the remaining cash used for buybacks to reduce share count annually. And now on to the outlook for third quarter. Revenue is expected to be $3.05 billion, plus or minus $100 million. We expect all end markets to grow sequentially. Given our higher-than-normal annual merit increase, operating margin is expected to be 49.5%, plus or minus 70 bps. And our tax rate is expected to be between 13% and 14%. Based on these inputs, adjusted EPS is expected to be $2.42, plus or minus $0.10. While we are very mindful of the current economic trends, our demand indicators remain very strong and our customer conversations remain upbeat, giving us confidence for continued growth for the remainder of 2022 and likely into 2023. Importantly, as a result of our vast diversification, leadership in numerous secular growth markets, additional synergies and our resilient hybrid manufacturing model, we believe ADI has never been better positioned to transcend cyclical downturns and accelerate long-term growth. Let me now give it back to Mike to start the Q&A. Michael Lucarelli: Thanks, Prashanth. Let's get to our Q&A session. [Operator Instructions] With that, Katrina, can we have our first question, please? Operator: [Operator Instructions] Our first question comes from Tore Svanberg with Stifel. Tore Svanberg: Congratulations on all the record results, especially on that 50% operating margin. My question is for Vince. Vince, towards the end of your remarks, you talked about growing output to increase swing capacity to 70% of revenues. Could you perhaps elaborate a little bit on that? And what is sort of the time line exactly for when you would hit that number? Vincent Roche: Yes. So as you know, Tore, we've been investing in our internal semiconductor manufacturing operations from 0.18 micron upwards, and we're doubling the output there over the next year or thereabouts, a year or 15 months. And of course, we cross-license technologies with some of our foundry partners. So when we talk about a 70% swing, it means that because we will have cross-qualified so many process technologies between ADI internal fabs and the external fabs that are controlled by our foundry partners, we got the ability to move utilization, if you like, from 1 place to another, depending on what part of the cycle we're in, in terms of managing utilization inside ADI and being able to meet the demand as it surges or declines. Operator: And your next question is from Stacy Rasgon with Bernstein Research. Stacy Rasgon : I wanted to ask about the gross margins. You mentioned a bunch of drivers, but you actually didn't mention pricing at all in your outlook there for the driver side. I mean, what impact has pricing had either to offset inflation or to potentially reprice the Maxim portfolio after the closure? And I guess, how do we think about the forward gross margin trajectory at these current, like, revenue levels? I mean, is there room for it to even go up from here, assuming the revenue levels kind of stay on the current trajectory? Prashanth Mahendra-Rajah: Thank you for the question. So as you know, we, along with the rest of the industry, has been passing along the higher costs. We have been very focused on not using this environment to take advantage of our customers but to really maintain our gross margins. So in '21, we had some headwind from the timing of inflation versus when we were able to enact the pricing. This has really abated in '22. So really, the gross margin percentage and the growth in gross margin percentage that you see is really being driven, as I mentioned, by the synergies, great utilization at the internal fabs and some mix benefits. I think in my prepared remarks, I talked about industrial hitting 51% of the overall revenue mix. So for the forward look, we updated our model just a couple of weeks back, and we feel very comfortable that in a typical cycle trough, we are going to be able to maintain a 70% floor. Beyond that, we will continue to make the right trade-offs with opportunities to expand the top line and -- at some trade-off on gross margin. So really the focus for the team is deliver the revenue growth and let that leverage drive all the way down through cash flow. So I wouldn't encourage folks to look for significant margin expansion. These are already pretty incredible numbers. Stacy Rasgon : But if the revenues kind of stay at this trajectory, can at least the gross margins stay where they are or will they just fluctuate around? Will like mix be the biggest driver from here? Prashanth Mahendra-Rajah: Yes, that's the right way to think about it, yes. Michael Lucarelli: You're right. If you look at our build margins at this point going forward, it's mix, utilization and then we also have the $125 million of synergies, some of that will be on the cost of goods sold side. As Prashanth laid out, we'll balance both gross margins really to drive operating margins and free cash flow. Operator: And your next question is from Vivek Arya with Bank of America Securities. Vivek Arya: Vince, I think or Prashanth mentioned that industrial sales have grown over, I believe, it's over 25% for the last 6 quarters and seem like they could be strong for another 2 or 3 quarters. I'm curious, how do you think about the normalized growth rate? And what macro indicators do you look at to say this is what ADI's industrial growth should be? Like what are the early signals that you get to give you a sense whether you're over- or under-shipping end demand? Because from the outside, we look at all the turmoil in China, we look at all the turmoil in Europe, but then we look at this very strong industrial growth number and it gets harder to kind of reconcile, right, these 2 narratives. So give us a sense for how do you feel about specifically your industrial business right now? Vincent Roche: Yes. Thanks, Vivek. So first and foremost, it's a highly diversified industrial business that we've been diligently investing in from an R&D perspective, from a customer engagement perspective over the last decade or 12 years with a renewed focus. We've been gaining share very, very clearly. I think our portfolio, particularly combined with the power activity as well from the LTC and Maxim acquisitions puts us in even better stead to capture more SAM essentially. And to your question on growth, I would say that we -- during the Investor Day, we said that the new model is 7% to 10%. So I think industrial is going to be right in there somewhere over time. And we feel more confident now, I think, about our industrial growth than we've ever done, just given the strength of the portfolio, the customer engagements and so on. And in terms of the signals we watch, obviously, we have a lot of conversations with our customers. I personally have had a stream of conversations with many of our largest industrial customers over the last quarter. And I think what they're all trying to convey to us is that things are different. We're moving into a new industrial cycle, Industry 4.0, 5.0, IoT, or I beg your pardon, IT and OT, if you like, colliding in a new partnership for the future, driving a lot of new technologies. So that's one, obviously 1 stream of input we get. The other signals we look at, obviously, are the PMIs, the machine to builders indexes and so on and so forth. Well, I think the greatest source of insight for us is our own knowledge of the end applications coupled with our customers' insights. Prashanth Mahendra-Rajah: Vivek, maybe I'll just add. I think I said it in the remarks, but to be clear to everyone, our growth in industrial was broad. All applications hit record results in '21 and are on track to hit another record in '22. Operator: Your next question is from C.J. Muse with Evercore. C.J. Muse: I guess a comment on my side. With these results, I'm surprised you didn't have Big Papi and Tom Brady at your Analyst Day. So next time. So to my question, your results are much better than your peers. Your B2B business, I think, up 11% versus your peers [at] mid-single digits. How do you think about the outperformance there? Is a part of that your ability to source incremental supply, market share gains, right mix? Would love to hear your thoughts there. And then as you think about the future going into the second half of this year and next, how does that inform your vision for continued outperformance? Prashanth Mahendra-Rajah: Yes. Maybe I'll start and then hand to -- hand over to Vince. So on the tactical side, we are working on getting additional capacity both from our external partners as well as the investments we're making internally. So you'll see that continue to play out over the course of the year, which is why I mentioned in the prepared remarks, look for us to continue to grow sequentially through this year and likely at least into the early part of next year. We talked about pricing that has been a little bit incremental to the revenue growth. So that's certainly a piece of it. And the demand has just been very broad-based. And again, I said it in my remarks but to be clear, we are seeing demand across all end markets and all geographies. It's very evenly spread and strength across all end applications. So we do feel, to Vince's remarks here, we do feel very well positioned and our technology is really starting to hit the sweet spot across all of our customers. And then maybe I'll pass here to Vince to add some more. Vincent Roche: Maybe just a little bit of color on the markets, C.J., to try and answer your question. So we have so many vectors of growth now, for example, in industrial, where we're basically playing on all the high-end applications. And as I said, we've been tuning the R&D continuously, the customer engagement. And if I just pick out health care as an example, that's beginning to get on to a $1 billion run rate now. It's been growing consistently for the last 7, 8 years in the -- at the double-digit level. Aerospace and defense, we see that actually, no matter what the cycle will be over the next few years, this is going to be an area of great strength for us. And in the communications area, great position in 5G. But interestingly, our wireline and data center business now is on a par with the wireless sector in terms of revenue contribution. So it's kind of half-and-half. So we see that again as a source of strength, buttressed also by a lot of the technologies that Maxim are bringing to that wireline area. Automotive, we have a great story on the in-cabin experience with A2B, cancellation, premium sign systems being more and more deployed, electrification. We're on a [100] a quarter run rate now, revenue run rate. And we have design-ins at virtually all the electric car companies at this point in time. So we see that on a trajectory to $1 billion-plus in the foreseeable future. So that's just some of the examples to complement what Prashanth has narrated as well in terms of the vectors of growth and prosperity for the company. Operator: Your next question is from Ambrish Srivastava from BMO. Ambrish Srivastava: I had a question on the cost synergies, Prashanth. How should we be modeling these on a go-forward basis? You said exiting fiscal '23, but what's the breakout? And then kind of related to that is when we're talking about gross margin, I was a little bit surprised that you said the inflationary pressure would be abating as we go into -- as we continue through this year. Did I catch that right? Because inflation, the headline numbers seem to be -- they haven't -- maybe they have peaked but definitely higher than where they were last year. So would love some color on that comment as well. Prashanth Mahendra-Rajah: Yes. Thanks, Ambrish. Two good questions, and thanks for giving me the opportunity to clarify. So first, on synergies. We had talked, when we did the Maxim closed that we had some great learnings from LTC on how to get to synergies and that was to move fast and hard, and you're seeing us execute against that strategy. So we captured basically the entire $275 million that we originally committed to as we exited our second quarter. And that at Investor Day, we said we're raising that target to $400 million, and we'll hit that number coming out of -- or as we exit 2023. That first $275 million was a little more tilted towards cost of goods, and the following piece will sort of be balanced between cost of goods and OpEx. So as you look forward, that's how to think about the balance of that. To your question on the comments I made, thank you for giving me a chance to clarify. We have used our pricing opportunities to maintain gross margin. So to be clear, we're not looking at pricing as an opportunity to expand gross margin but really as a way to offset. So when I said abate inflation, I meant versus the historical inflation that we had experienced in 2021. It took us a little bit longer to get those pricing actions in place. So now we have neutralized them and you see that benefit in the current year. And of course, if we do continue to see price increases -- sorry, cost increases in the coming quarters, expect us, like the rest of the industry, to respond by pushing those through. Ambrish Srivastava: So there's no artifact in the 74% that you reported this quarter for pricing? We should expect kind of that level on a go-forward basis, maybe bounce around based on mix and also the utilization rate? Michael Lucarelli: Ambrish, this is Mike. Yes, as we had talked about earlier, going forward, that 74% will bounce around, like you said, mixed utilization of the 2 drivers. And then as Prashanth outlined, that [1 25] does have a COGS element in it that will also help gross margins. But if you go forward 74%, plus/minus, I feel pretty good about that. Prashanth Mahendra-Rajah: With the caveat, again, I want to make it clear for everyone, with the caveat that we are focused on growth. So where it makes sense for us to be a little more flexible to drive top line, we will do that. So I wouldn't want folks getting too laser-focused on modeling in mid-70s on the gross margin. We've given you a floor and we will give the management team the flexibility they need to drive the top line. Ambrish Srivastava: Right. You've been very consistent about that. Operator: Your next question is from Chris Danely with Citigroup. Chris Danely: So with all this talk on revenue growth, your forecasted sequential revenue growth for July is the slowest in a couple of years. Can you talk about why that's happening? And is that because of COVID shutdowns or something else? And then as part of that, with all this focus on increasing capacity, I would assume your capacity is growing faster than the 2% or 3% sequential revenue growth. So can we assume that the lead times are coming in this quarter as well? Prashanth Mahendra-Rajah: Yes. So Chris, the sequential growth is constrained by capacity. But we've indicated that we will see sequential growth through the year. So look for a more meaningful change as we get past the third quarter, which we've been saying for a while. So if you look back at prior comments, we've been very clear that we've ordered the tools and the equipment. We know our position in the queue. We know when those are coming in, and they go to revenue generation fairly quickly. So we are maintaining our outlook that we will exit the year at a much higher run rate than where we are now. And that is all driven by our ability to produce. And what was the second question? Chris Danely: Perfect. Michael Lucarelli: Yes. Chris, I'll also add 1 thing. You're right, the sequential growth is, I'll call it, decelerating now. What happened in the first half of the year, we talked about, we added pricing and that added to the growth. We had volume and pricing in the first half of the year that's driving sequential. Pricing is really in the model now, now that the growth in the back half on a sequential basis is really driven by capacity and volume. And if you zoom out and don't look at sequentials and look at year-over-year, we're growing our B2B business in our fiscal third quarter by over 20% year-over-year again. So it's a fantastic result, I think, and it shows the strength of this franchise. Prashanth Mahendra-Rajah: Yes. I think we can give everyone the data point that on a sequential basis, think of it as 50-50. The growth is coming from pricing versus units. So that falls into the baseline sequentially as we go forward, pricing falls into the baseline. Operator: Your next question is from William Stein with Truist Securities. William Stein: I’ll add my congratulations to the very strong revenue and profitability and the outlook as well. That was great. But despite all that good stuff, there’s a few factors that investors are certainly concerned about potentially disrupting bookings and potentially revenue performance, of course, the war in Ukraine, the COVID shutdowns in China and raising rates. But there’s also a concern maybe not as prominent, but – that we’ve picked up on, which is customers adjusting orders, potentially ancelling or pushing out because they’re very challenged from a kitting perspective. You highlighted yourself that you’re capacity constrained. Can you help us understand how those factors are affecting your business today and how you anticipate them playing out in your business over the next few quarters? Vincent Roche: Yes. So I think first and foremost, cancellations on ADI are very, very low. They’re very muted. Customers – we’ve been very equitable in terms of how we have moved our supply across the markets, across the geographies, across the customer sizes. And I think that still is in very, very good stead. So my sense is we have – because of the equitable distribution of our goods, so to speak, we’ve got a better, more true read on demand. And I think what we’re shipping reflects what is true demand, I think better than most, I believe, based on feedback I’m getting from customers. So I think those are the facts, cancellations low, equitable distribution of goods. And we don’t see any – our backlog is still, actually during the last quarter, increased so demand continues to remain strong. A –Prashanth Mahendra-Rajah: Yes. Just the numbers. Well, the book-to-bill is above 1 in the second quarter, and that was, again, by all end markets and geographies. Because of that, the backlog continued to grow. You asked specifically about China. So real quickly, that’s about 20% of our revenue. And the lockdowns had some impact on customer production, but it was really more severe around logistics and the supply chain related to the greater Shanghai area. Our China revenue was up quarter-over-quarter and year-over-year and no notable impacts to demand. Again, cancellations normal, and as I mentioned, book-to-bill above 1 for China. So when our guide reflects that most customers are operating at relatively normal levels and we consider this dynamic, so we think that at least for the third quarter, it’s going to be a negligible impact. Vincent Roche: Yes. Just add a little bit of color. Also, we have no internal manufacturing operations in China. And from a logistics standpoint as well, we have very, very modest operations also in China. A –Michael Lucarelli: We’ll go to our last question, please. Operator: Our last question is from Toshiya Hari with Goldman Sachs. Prashanth Mahendra-Rajah: Toshi, are you on? Toshi may be on mute. Do we have 1 more in the queue? Michael Lucarelli: Do we have 1 more in the queue? Operator: Our next question is from Gary Mobley with Wells Fargo Securities. Gary Mobley: I wanted to ask a follow-up question on backlog. I think you mentioned that based on the backlog and adding incremental supply, your expectation is for sequential revenue growth for at least maybe the next few quarters, maybe 3, maybe 4 quarters. Wondering to what extent have you stress tested your backlog to see, I guess, under the most bearish of circumstances, how that may trend if perhaps we see further deterioration in the economic backdrop and whatnot? Prashanth Mahendra-Rajah: Yes. Gary, a fair question. The -- as Vince mentioned, we look at a number of external indicators. So we are mindful of what's happening in the macro environment. But as you mentioned, the conversations that he has with our customers continue to support their need for our products and that we are attached to the right secular driver. So I do want to clarify, you had said sequential growth for the next 3 to 4 quarters. I can't see out that far, Gary. I feel good about the next 2 to 3 quarters sequential growth, but I'm not sure I want to go out further than that at this point. Michael Lucarelli: Thanks, everyone, for joining us this morning. A copy of the transcript will be available on our website. Thanks again for joining the call and your continued interest in Analog Devices. Operator: This concludes today's Analog Devices conference call. You may now disconnect.

Operator: Good morning and welcome to the Analog Devices First Quarter Fiscal 2022 Earnings Conference Call, which is being audio webcast via telephone and/or the web. I’d now like to introduce your host for today’s call, Mr. Michael Lucarelli, Vice President of Investor Relations. Sir, the floor is yours. Michael Lucarelli: Thank you, Holly and good morning everybody. Thanks for joining our first quarter fiscal ‘22 conference call. With me on the call today are ADI’s CEO, Vincent Roche and ADI’s CFO, Prashanth Mahendra-Rajah. Anyone who missed the release, you can find it and relating financial schedules at investor.analog.com. Now, on to the disclosures. The information we are about to discuss includes forward-looking statements, which are subject to certain risks and uncertainties, as further described in our earnings release and our periodic reports and other materials filed with the SEC. Actual results could differ materially from the forward-looking information as these statements reflect our expectations only as the date of this call. We undertake no obligation to update these statements, except as required by law. Our comments today will also include non-GAAP financial measures, which exclude special items. When comparing our results to our historical performance, special items are also excluded from prior periods. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures and additional information about our non-GAAP measures are included in today’s earnings release. Okay. With that, I will turn it over to ADI’s CEO, Vincent Roche. Vince? Vincent Roche: Well, thanks, Mike, and good morning to everybody. So once again, ADI delivered another record quarter, marking a strong start to the year. Our continued success was driven by our unparalleled high-performance portfolio and our team’s strong operational execution and intense customer focus, enabling us to better meet the growing demand for our products. Now, looking at our first quarter results, revenue was $2.68 billion, up more than 20% year-over-year on a combined basis. Growth was broad-based, with all segments up double-digits year-over-year, led by industrial and automotive. Gross margin expanded to 72% and operating margin increased to over 45%. Adjusted EPS was $1.94, up 35% year-over-year. Now, it’s been nearly 6 months since we closed the Maxim transaction, overall, we have made great progress on the integration to-date. The feedback we have received from customers and our teams has been overwhelmingly positive and we have taken important steps to strengthen our operations. In the many exchanges I have had with our customers, they have expressed their enthusiasm for the combination recognizing the increased value that ADI and Maxim together bring to the market. Broadly speaking, ADI is viewed as a trusted, long-term focused partner that takes a customer-first approach to our engagements. We offer a unique combination of best-in-class engineering and unmatched domain expertise, with a high-performance portfolio that spans from microwave to bits, from nanowatts to kilowatts and from sensor to cloud. This is enabling us to develop more complete solutions that define the edge of possible. The acquisition of Maxim increases the breadth and depth of our high-performance portfolio, especially in power management. Here, our more comprehensive power portfolio allows us to better address opportunities across industrial, automotive, datacenter, connectivity and consumers. Similar to the cross-selling activity we implemented with the LTC portfolio, we are aggressively identifying areas to attach this power portfolio with ADI’s leadership positions in analog, mixed signal and RF. And with our extended sales and field organizations, we are better positioned to uncover cross-selling opportunities and serve existing and new customers who have an increased need for application and design support at a solutions level. I have also been highly engaged with our teams across ADI. The combination has unleashed excitement throughout the organization. There is a burning desire to capitalize on the numerous opportunities to accelerate revenue growth. And I am already seeing firsthand the benefits of our collaboration, from operations, to engineering, to sales, making me excited for what’s ahead. Turning firstly to our manufacturing operations, the analog sector is characterized by fragmentation, with diversity across products, customers, applications and markets. To tackle this complexity, we utilize a hybrid manufacturing strategy, providing us with vast capabilities across technology, processes and packaging necessary to create innovative solutions from 7 nanometers to 7 microns for our 125,000 customers. The combination with Maxim enhances our hybrid manufacturing model by enabling a more diverse network of internal facilities and external partners. This increases our access to technologies and capabilities, which in turn expands the scale and the scope of our offerings. We are investing in our internal manufacturing operations to build a more robust and cost effective model. To that end, we are expanding the footprints of our Oregon and Limerick fabs and adding significant capital to our test operations at our facilities in the Philippines, Thailand and Malaysia. These investments will grow our capacity this year and into 2023, provides seamless product qualifications for our customers, and give us greater optionality between our internal facilities and foundry partners. Now ahead of our Investor Day in April, I’d like to preview some of the secular growth trends that make us most excited about the future of our industry and for our company. In the industrial market, we are seeing the compounding effect of many concurrent secular trends. For example, our instrumentation business, which is comprised of automated test equipment, electronic test and measurement and scientific instruments, is aligned with growth trends from connectivity, to EVs, to sustainability. The growing technology complexity of these applications requires ADI’s more advanced metrology solutions, enabling us to continue increasing our SAM. Our factory automation business is empowering another critical trend of more intelligent and connected factories. Here, we support tens of thousands of customers of all sizes with our precision signal chain, power management, sensing technologies, and robust wired and wireless connectivity solutions. In automotive electrification, we are the global leader in battery management systems for EVs, with double the market share of our nearest competitor. We are continuing to build momentum globally. And in the last quarter, we have recorded several new design wins from premium European auto manufacturers. Electrification is not exclusive to the automotive sector. There is a necessary shift to sustainable energy sources to deliver the environmental benefits of electrification. This vision requires green energy generation with a smart grid, which digitally monitors and adjusts performance and also energy storage systems, which mitigate intermittency issues related to variable user demand. ADI supports this infrastructure with control and sensing technologies as well as accurate monitoring and efficient power conversion to ensure the grid parameters remain stable. Within automotive, we are also seeing manufacturers create a more immersive human experience by digitalizing the cabin. This requires increased bandwidth, lower latency and more efficient power management, creating new opportunities for ADI’s connectivity and power portfolios. For example, our audio system solutions with signal processing, A2B connectivity and road noise cancellation provide customers with the highest fidelity solution while also reducing the vehicle’s weight. In addition, our GMSL franchise and functional safety certified power management solutions are critical in architecting and efficiently powering advanced driver assistance systems. Overall, our market-leading positions in BMS, audio systems and GMSL, combined with our complementary customer bases, position our automotive franchise to deliver strong growth in the years ahead. Turning now to advanced communications networks, in wireless, ADI’s market leading software-defined transceiver portfolio is enabling next-generation communication systems from traditional 5G, to O-RAN, to low earth orbit satellites. And we are expanding our SAM with the industry’s first transceiver that includes a fully integrated digital front-end. In wireline, our optical control and power portfolios are critical to tackling the exponential growth in bandwidth and compute power of carrier networks and hyperscale datacenters. Here we see a large and underserved opportunity for ADI. So with that backdrop, we look forward to expanding on these areas and more at our Investor Day with our senior leadership team. So in closing, ADI is the leader in innovating at the edge. We have an industry leading high-performance portfolio that continues to benefit from the acceleration of mass digitalization across industries. And with Maxim, our portfolio has increased in breadth and depth and we see even more opportunity than ever to capture additional market share. And I am very optimistic about what our future holds. And so with that, I will hand you over to Prashanth who will take us through the financial details. Prashanth Mahendra-Rajah: Thank you, Vince. Good morning, everyone. Let me add my welcome to our first quarter earnings call. My comments today, with the exception of revenue, will be on an adjusted basis, which excludes special items outlined in today’s press release. The revenue commentary is on a pro forma basis and includes pre-acquisition Maxim revenue in the comparable period. ADI delivered a very strong first quarter, with record revenue, profitability and earnings. These results reflect the secular demand for ADI’s products, capturing synergies and effectively passing on inflationary costs. Our manufacturing team is diligently securing additional internal and external capacity as orders remain robust across all our markets and our backlog continues to grow. This sets the stage for continued sequential growth through the balance of fiscal 2022. So for the first quarter, revenue of $2.68 billion finished near the high-end of our outlook, with double-digit growth across all end markets and geographies. This marks our fourth consecutive quarter of record revenue and eighth straight of sequential growth. Looking at our end market performance for the quarter, industrial, our most diverse and profitable market, represented 50% of revenue and achieved a new all-time high. Industrial has grown more than 20% year-over-year for five straight quarters, underscoring our strong market positioning, supported by numerous secular tailwinds, including automation, digital healthcare, sustainable energy, aerospace and instrumentation. Automotive, which represented 21% of revenue, achieved another record, with every major application posting double-digit year-over-year growth. Our battery management system offering continues to outperform and represents over 15% of automotive revenue, underscoring ADI’s leadership in electric powertrains. Additionally, secular content growth inside the cabin continues to drive both the A2B and GMSL connectivity franchises to new heights. Communications represented 15% of revenue and exhibited strength in wireless and wireline. We are in the early days of 5G deployments and expect global rollouts, led by North America, to accelerate in 2022 and beyond. And in wireline, demand remains strong as carriers and hyperscalers continue to upgrade their cloud infrastructure from long-haul to datacenter. And lastly, consumer represented 14% of revenue and was in line with seasonality. Importantly, we continue to grow year-over-year, supported by strategic investments aimed at diversifying our customer and application mix. The first quarter demonstrated our increased portfolio breadth as all segments achieved growth, including professional audio video, gaming, wearables, hearables and personal electronics. Now, looking at the P&L, gross margin increased 100 basis points sequentially and 190 basis points year-over-year, resulting in a record 71.9%. Favorable product mix, higher utilizations and synergies were key drivers of the increase. OpEx in the quarter was $702 million, better than anticipated due to faster synergy progress. Operating margin of 45.8% increased 510 basis points year-over-year. Non-op expenses were $44 million in line with last quarter. And our tax rate for the quarter was approximately 13%. All told, adjusted EPS of $1.94 increased 35%. Our record profitability this quarter was driven by the stronger revenue growth as well as the synergy capture. And now moving on to the balance sheet, we ended the quarter with approximately $1.8 billion of cash and equivalents. And on a trailing 12-month pro forma basis, our net leverage ratio was just under one turn. Days of inventory increased modestly sequentially to 115 and channel inventory remains below the low end of our 7 to 8-week target. Looking at cash flow items, CapEx was $111 million for the quarter and $387 million over the trailing 12 months. As a reminder, during fiscal 2022, we plan to invest 6% to 8% of revenue to significantly grow our front and back-end capacity and build a more resilient hybrid manufacturing model for the long-term. Importantly, this higher level of CapEx will not hinder our capital return commitments. Over the trailing 12 months, we generated $2.78 billion of free cash flow or 33% of revenue. Our free cash flow margin was lower by about 3% due to costs related to the Maxim acquisition. Over the same time period, we returned approximately $4.2 billion or more than 150% of free cash flow via purchases and dividends. And as a reminder, we target 100% free cash flow return. We aim to use 40% to 60% of our free cash flow to consistently grow our dividend, with the remaining free cash flow used for share repo. And just yesterday, we announced a 10% increase to our quarterly dividend, marking the fourth consecutive year of double-digit increases. We have now raised our dividend 19x in the past 18 years. Our ASR program concluded in the first quarter, and as a result, we retired approximately 14.4 million shares. We are now more than halfway towards executing our $5 billion repo commitment by the end of calendar 2022. So let me finish with the second quarter outlook. Revenue is expected to be $2.8 billion, plus or minus $100 million. At the midpoint, we expect all B2B markets to grow sequentially and for consumer to be flattish. At the midpoint, operating margin is expected to be 46.5%, plus or minus 70 bps. And this outlook includes approximately $100 million of annual run rate synergies, split roughly evenly between cost of goods and OpEx as we exit second quarter. Our tax rate is expected to be approximately 13%. So based on these inputs, adjusted EPS should be around $2.07, plus or minus $0.10. And finally, let me end with an invitation. We are holding our Investor Day on April 5, where we look forward to sharing ADI’s long-term strategy, our new financial model and a detailed update on all phases of our synergy road map. We hope to see many of you in person at our headquarters right outside of Boston, where we will offer unique customer-led interactive technology demonstrations and displays throughout the day. This includes showcasing our wireless battery management system for EVs and much more. I’ll hand it off to Mike for the Q&A. Michael Lucarelli: Thanks, Prashanth. Let’s get to the Q&A session. [Operator Instructions] With that, we have our first question, please. Operator: [Operator Instructions] And our first question is going to come from the line of Vivek Arya with Bank of America Securities. Vivek Arya: Thank you for taking my question. And good to see the strong execution. Vince, I was hoping you could maybe give us a readout of what you see as kind of the supply-demand balance in your different end markets. And if – as part of that, if you could help us understand what role is pricing playing in the industry today. And can it be sticky over time? Or will it need to revert back as there is more trailing-edge capacity that comes online, including from your other large U.S. competitor? Prashanth Mahendra-Rajah: Good morning, Vivek, I’m going to just do the setup for that on the supply and demand environment. So what we’re seeing in 2022 looks a lot like 2021. So we expect that we will be chasing demand throughout the year. We’ve got continued order strength across the business. As I said in the prepared remarks, all end markets, all geographies are looking strong. And our backlog is continuing to expand. We’ve delivered eight sequential quarters of growth, and that’s supported by the manufacturing team continued to increase their ability to supply. And as I mentioned in the remarks, we expect that increase to be progressive over the balance of the year while they continue to debottleneck the process. So that will help us drive sequential growth. From a supply standpoint, we’re going to continue to look at the balance here and keep an eye on how things are going. But our view is that this will run through the balance of this year. And we expect that we will probably still have a little bit of catching up to do in early ‘23. On pricing, that’s a longer question, so let me split that into two pieces. Why don’t I talk margins and then I’ll let Vince talk kind of pricing strategy. So from margins, we along with the rest of the industry have been passing on the higher costs that we’ve been seeing. So we’re not using this environment to take advantage of customers, but really targeting to maintain gross margins. So we have been pushing those costs out. But built into those margins is a number of items, including the synergy execution, which is coming in faster than we thought, some benefit of mix, higher revenue because we are actually shipping more units. So I think on a quarterly basis, unit shipment is up double-digits year-over-year. And then, of course, with all this unit increase in unit shipment, utilizations are also quite strong. So there is a number of benefits that are underlying the margin piece. But to finish off on pricing, I’m going to pass to Vince to maybe talk about how we’re – how he’s talking to customers. Vincent Roche: Yes. Vivek, just to add a couple of other color comments here. So we have historically managed our pricing to reflect the value that we deliver to our customers. We get an innovation premium for our products. And also, we have very, very long life products in our portfolio. And customers pay us to keep security of supply for the long-term. And that’s an approach that we intend to keep in perpetuity. I think also, pricing for us is more structural than cyclical. I think the last couple of years have really brought semiconductors from the background into the foreground and shown the importance of semiconductors to the modern digital economy. And I think customers understand the value in a more meaningful way. So I think, as Prashanth said, cost inflation, we’re in the post-Moore’s Law era, cost inflation, I think, is going to be a long-term facet of the economic dynamic of the semiconductor business. So I expect that cost increases will moderate, but there will be inflation, I think, for the medium to long-term here. So I think when you put it all together, the industry is in a better place to capture more of the value that it’s been generating over these many, many decades. And then I think we will benefit from that as a company based on the quality of our innovation, but also the new dynamics in the industry. Michael Lucarelli: Thanks for that, Vivek. Nest question please. Operator: Thank you. Our next question will come from the line of John Pitzer with Credit Suisse. John Pitzer: Yes. Good afternoon. And good morning, guys. Thanks for let me ask the question. Just to follow-up on the pricing side of things, Vince. I’m just kind of curious, will this year’s revenue growth be more influenced by pricing than last year? And to the extent that the price environment seems to be structurally changing, are there any parameters you can give us? Historically, pricing did x, and now we think it’s going to do sort of x plus. And because – and the reason why I asked the question is we look at your relative growth rates to some of the end markets that you participate in, and you’re clearly growing significantly faster. And there is a content side of things. But that relative growth does kind of make people concerned about inventory levels. And so we look at inventory and revenue, we probably should be looking at it on units. I’m just kind of curious how we should try to factor in that pricing dynamic. Prashanth Mahendra-Rajah: John, let me just set the numbers on that. So this year, pricing or – actually, I should say, for the current quarter, pricing counts for less than half the growth. So that kind of helps you size it. And we had said on the prior quarter’s call that in 2021, we had cost increases that were coming at us faster than we were able to push price out because we were in the process of closing the deal on Maxim and beginning the integration. So we did expect more pricing tailwind this year because we actually had inflationary cost headwind last year. Vincent Roche: Yes. I’d say, John, one other comment. I’ve said many, many times before that for several years up to this step function increase due to inflation in prices and cost of goods and then prices, our pricing was – for many, many years, we had been – we had to fill a gap. We had to ship more units to keep up with the annual price reductions. I would say we were accentuating towards zero price reduction on the average, adding more ASPs to our products for the innovation that we’re creating. And then I think that for the long-term is going to be a better way to gauge ADI’s pricing methodology. So we’re pricing for value. And we’re injecting significant amounts of R&D into the company to make sure that we keep ahead of our customers’ needs. So that will be, I think, the primary dynamic for value capture for ADI for the years ahead. Michael Lucarelli: Thanks, John. Next question please. Operator: Our next question will come from the line of Pradeep Ramani with UBS. Pradeep Ramani: Hi, thanks for taking my question. I just wanted to ask about your automotive business just given how automotive production is sort of sharply rebounding in 2022. How do you feel about how much your automotive business can outgrow SAAR or even production in 2022? How should we think about that? Thank you. Vincent Roche: Yes. I think right now, the supply chain is very, very lean. That is pretty well established. I’ve talked with a lot of automotive companies over the last 6 months or so. And my sense is that everything that we’re shipping has been used and I don’t see any stockpiling. So content in vehicles is increasing every year. The value generation activity in the auto sector now is – it’s driven by semiconductors and software. So we’re seeing content growth of 5% to 10% per year. And I think that will continue for the foreseeable future. We are seeing, I think, the shift towards EVs. I’ve been surprised by the speed of the shift myself in the 2021 period. And that our customers are tilting the content, the semiconductor content towards premium models. So that accelerates the content growth story versus history. And then long-term, we expect to be able to grow our business in the automotive sector as a multiple of SAAR. We see tremendous opportunity to continue to drive our share and growth story of EVs. In cabin connectivity where we’ve got a very, very strong signal processing franchise, to which we’ve connected our A2B connectivity, road noise cancellations, a new value creator in the cabin. And we’re very excited by the GMSL, the connectivity portfolio, the high-speed connectivity portfolio that we have inherited from legacy Maxim. And we have aggressive plans to continue to build that out, both in terms of product development as well as our manufacturing footprint. And last but not least, power. We are underrepresented in general in power management, I’d say, across the industry, and particularly in automotive and industrial. So, I think the combined portfolio of ADI and Maxim gives us a tremendous opportunity to tap in to what is actually the largest sector. Power is the largest sector of the analog market, and it’s growing at a compounded rate there. So, that gives you a sense for our automotive thinking. Michael Lucarelli: Thank you. Operator: Our next question will come from the line of Toshiya Hari with Goldman Sachs. Toshiya Hari: Hi, good morning. Thanks so much for taking the question and congrats on the strong execution. Prashanth, I wanted to ask about your synergy capture in the quarter and how to think about synergies going forward. In your prepared remarks, I think you talked about earlier than expected synergy capture. Should we consider this as kind of a pull-in of synergies, or would it be fair to assume that the Phase 1 target of $275 million is a little bit more on the conservative side? And then, I guess additionally, on Phase 2, I realize it’s kind of early. But you had talked about potentially looking at your manufacturing footprint similar to how you did with the linear. Is that still the plan, or could things change given the stronger demand backdrop? Thank you. Prashanth Mahendra-Rajah: Yes. Good question, Toshi. And a great setup to invite folks to join us in April when we are going to answer all those questions. The – in the last call, we talked about $20 million of synergies was realized in fourth quarter. And we said that there would be minimal impact in the first half before ramping more aggressively into the second half. We have moved faster than originally planned and we have captured more earlier. So, we are going to exit second quarter at about $100 million of that $275 million. And as I have said in the remarks, it’s roughly split between both cost of goods and OpEx. The – we will give you an update on that $275 million in terms of how much we believe we can actually achieve in that first Phase 1 time period. We will do that at the April earning – Investor Day. Vivek will also specifically talk about his plans and what he is – has high confidence on for Phase 2 of the cost synergies. And then our Head of – our Chief Customer Officer is going to talk about the revenue synergies that we are expecting from the combination. So, we will lay all that out for you when we see you here in Boston in a couple of weeks. Toshiya Hari: Got it. Thank you. Operator: Thank you. Our next question will come from Stacy Rasgon with Bernstein Research. Stacy Rasgon: Hi guys. Thanks for taking my questions. I wanted to ask about gross margin. So, I hear what you are saying on pricing. It sounds like it’s a revenue boost, but not so much a margin boost yet. But I just look at the company, ADI standalone was kind of 70 to maybe low-70s, Maxim was kind of mid to high-60s. And you are doing 72% out of the gate. Is this mostly just utilization and mix and the synergies? And it sounds like you have got more synergies coming. You have got revenue going through the year. Should we be thinking about the current gross margin level you just put in Q1 as sort of being the bottom for the year as you continue to progress? Prashanth Mahendra-Rajah: Yes. Stacy, let me just clarify, that I would be incorrect to assume that there was no benefit from pricing in the gross margins. What I wanted to clarify earlier in the response was, embedded in that margin improvement is the synergy, the faster synergy execution, which I just answered in Toshiya’s question. The mix, which we talked about in the prepared remarks, again, very strong industrial at 50%, is great for us. And then higher unit volume, because we are up on a unit basis double-digits, and utilization, and then pricing also fits into that. So, they are all elements of that. In terms of how to think about the gross margin on a go-forward basis, we will share the new operating model or the financial model for the company in April. But I will preview to say that our focus continues to be on how do we drive the best revenue growth balancing that gross margin. So, as we have met with investors, there is pretty uniform agreement that what they would like to see is higher revenue growth and make the trades that are necessary on margin to be able to deliver higher revenue growth. So, we will talk more about the model in Investor Day. But I would not be encouraging folks to be modeling very high gross margin numbers over the long-term. Michael Lucarelli: Gross margins, Stacy, and how it trends, we don’t guide gross margins, but I will give you some context around. If you look at 2Q, it’s usually up a bit. That’s embedded in our outlook. In the back half, usually about flat from there. That kind of helps you from a kind of near-term 2022 outlook. And then at the Investor Day, we will talk more about the long-term outlook for the business. Stacy Rasgon: That’s helpful. Thank you so much. Operator: Our next question will come from the line of Tore Svanberg with Stifel. Tore Svanberg: Yes. Thank you and congratulations on the record results. Could you just talk a little bit more about your capacity plans? You talked about increasing CapEx 6% to 8% this year. I don’t know if that’s sort of the first year or more to come. And is there any way for you to quantify what that does as far as capacity expansion? I know you have a hybrid model and this is a moving target. But any color you can share with us on how much capacity you are going to have? That would be great. Thank you. Vincent Roche: Yes. So thanks, Tore. The – well, first off, if we just take it from a high level, first, we have always utilized a hybrid manufacturing model at ADI. And it gives us the reach of process technology and capabilities that we need to support the sheer breadth of our portfolio, which is more than 75,000 unique product sets. And we are supplying 125,000 customers. So, I think when we think about the long-term, we will continue to use the benefits of this hybrid model for optionality, resilience and the availability of technology. So overall, the business that we are in, it is – and given that we are approaching the world with a hybrid mentality, our business is less capital intensive. And it also gives us, as I said, resiliency in terms of gross margin and long-term access to more options for process technology, etcetera, etcetera. So, I will hand it over to Prashant. He will make a few comments on the investments that we are making and how we are going to strengthen that model. Prashanth Mahendra-Rajah: Yes. Tore, I think your question was specifically related to CapEx. So, let me just – let me kind of size that at a high level. So, we said that our CapEx is going to be doubling in 2022. And we are targeting somewhere between 6% to 8%, which is above our historical long-term rate of 4%. And that CapEx is being used for internal capacity. Specifically, that can swing in and out, so it helps us with optionality. And that’s an important element of the hybrid manufacturing model that Vince talked about is being able to use that same capacity for volume when we need it or utilization if the market should not have the same level of demand as they do today. So, the shelves of the building are complete. And Vince mentioned in his prepared remarks that we were adding in – expanding our footprints in Oregon and Limerick. And also, we are adding a significant amount of testers to our back end in the Phils, Thailand and the LTC site that we acquired in Malaysia. Tore Svanberg: Great. Helpful. Thank you. Vincent Roche: Thanks Tore. Operator: Thank you. Our next question will come from the line of Ambrish Srivastava with BMO Markets. Ambrish Srivastava: Hi. Thank you very much. Prashanth, I wanted to come back to the inventory. On a GAAP basis, which is consistently how we measure for all companies, it’s pretty low versus the average and versus the long-term target that you have laid out. And on an absolute dollar basis, it was down quite a bit as well. So, I was just wondering, part of it is probably from the accounting and the step-up you had from the Maxim acquisition. Could you just help us understand, was there a drawdown internally? And I don’t think I heard you talk about where channel inventory was. So, what should we expect inventory to do on an absolute dollar basis as we go through the year? Thank you. Prashanth Mahendra-Rajah: Yes, great question, Ambrish. So first, let me say that you are absolutely right. There is a bunch of purchase accounting that is flowing through the balance sheet. So, the inventory numbers probably have a bit more noise, and we can handle that with your team offline. But let me high level kind of help folks to think about the inventory. So, the channel remains very, very lean. That is not the – not our balance sheet, but the inventory in the channel, that remains very lean, well below our seven-week to eight-week target. We are having difficulty building inventory in the channel. We get it into the channel, and it moves out very quickly. Within ADI’s books, our days of inventory are up slightly, primarily, as I mentioned that we are planning to see revenue increase sequentially for the balance of the year. So, you have the raw material and the WIP is in – is sort of in the middle of the process now before that comes out, and that is – that’s up. We also had a little bit of finished goods up, but that was purely timing on when the quarter ended versus where the goods were in the transit process. So, I wouldn’t read anything into our increase in finished goods, except to say it’s just – it happened to be when the Drawbridge closed for the quarter. Michael Lucarelli: Thank you, Ambrish. We will go to our last question, please. Operator: Alright. Our last question will come from the line of Harlan Sur with JPMorgan. Harlan Sur: Good morning. Congratulations on the strong results and execution. If I look at cloud and hyperscale data center CapEx spending for this year, that’s expected to grow like 30%. And I know that in the data center end market, Maxim, for example, they provide the critical processor power management for NVIDIA’s data center GPUs. They provide power management for Google’s flagship AI processors. On the ADI side, you guys provide server power supply solutions and optical networking solutions. So, I guess my question is, given the strong backdrop, was data center a big driver for your comps business in Q1? How do you see data center growth for the full year? And how big is data center as a percent of your overall comm business? Michael Lucarelli: I will answer backwards. I will start with kind of the sizing of data center for you. If you look at our comms business, it’s about 15% of total revenue. That’s split about evenly between wireless and wireline, about 50%, 50% in each of those. And if you look at the wireline piece, that’s where data center is embedded, it’s probably about 30% to 35% of that relates to the data center. What do we ship into this, I know you outlined it pretty well. I am not going to go through it again. But I will pass it to Vincent and Prashant, probably Vince to talk a little bit more about what the opportunity is in data center and why we are excited. Vincent Roche: Yes. Thanks Mike. Well, we have I consider, combined with Maxim, a strong position in optical connectivity as well as carrier networks, but also power management, whether it’s the power system monitoring, energy monitoring and actually power delivery itself. We see that as a phenomenal opportunity. So, my sense is, and we will talk more about this at the Investor Day, but we will unpack the story for you. But my sense is that we can double our data center and cloud business over the next 4 years to 5 years. Harlan Sur: Great. Thank you. Michael Lucarelli: Alright. Thank you, Harlan. And thanks, everyone, for joining us this morning. A copy of the transcript and all of our reconciliations will be available on our website. We hope you can join us at our in-person at Investor Day, April 5. Thanks for joining the call and interest in Analog Devices. Have a good day. Operator: This concludes today’s Analog Devices conference call. You may now disconnect.

Operator: Good morning, and welcome to the Analog Devices Fourth Quarter and Fiscal Year 2021 Earnings Conference Call, which is being audio webcast via telephone and over the web. I'd like to now introduce your host for today's call, Mr. Michael Lucarelli, Vice President of Investor Relations. Sir, the floor is yours. Michael Lucarelli: Thank you, Stephanie, and good morning, everybody. Thanks for joining our fourth quarter and fiscal 2021 conference call. With me on the call today are ADI's CEO, Vincent Roche; and ADI's CFO, Prashanth Mahendra-Rajah. For anyone who missed the release, you can find it and relating financial schedules at investor.analog.com. Now on to the disclosures. The information are about to discuss in forward-looking statements, which are subject to certain risks and uncertainties, as further described in our earnings release, ADI and Maxim's periodic reports and other materials filed with the SEC. Actual results could differ materially from the forward-looking information as these statements reflect our expectations only as of the date of this call. We undertake no obligation to update these statements, except as required by law. Our comments today will also include non-GAAP financial measures, which exclude special items. When comparing our results to our historical performance, special items are also excluded from prior periods. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures and additional information about our non-GAAP measures are included in today's earnings release. Please note we published a table on our Investor web page of historical pro forma combined end market revenue aligned to ADI fiscal quarters. As part of this exercise, we also mapped subsegments to match ADI's groupings. As a result of this reclassification, about $150 million of annual revenue moved from industrial and communications to consumer for the Maxim business. And with that, I'll turn it over to ADI CEO, Vincent Roche. Vince? Vincent Roche: Thank you very much, Mike, and a very good morning to you all. Well, once again, we delivered record revenue and profits in our fourth quarter, closing out what was a milestone year for ADI. Our success was driven by our industry leading high performance portfolio and our team's strong operational execution, enabling us to better meet the insatiable demand for our products. Now stepping back a little. 2021 truly demonstrated the vital importance of semiconductors to the modern digital age. We invested ahead of this inflection, building a comprehensive portfolio to better solve our customers' most complex problems in this ubiquitously sensed and connected world. As we enter 2022, our backlog and bookings remain robust and we continue to invest in manufacturing capacity, positioning us well for another successful year ahead. Now moving on to our results. Our fourth quarter revenue was $2.34 billion and EPS was $1.73, both exceeding the midpoint of guidance. And for 2021, our revenue was $7.32 billion and EPS was $6.46. Looking at our organic ADI. We delivered new high watermarks on revenue and profits. Industrial and automotive achieved record revenue this year, while consumer returns to annual growth for the first time since 2017. And communications revenue declined its continued strength and wired was offset by weakness in wireless related to the China market. In 2021, we generated a record $2.4 billion of free cash flow, equating to a free cash flow margin of approximately 33%. This maintains our position in the top 10% of the S&P 500. In line with our revised capital allocation strategy to return 100% of free cash flow, we returned $3.7 billion to shareholders in 2021 through dividends and share buybacks. It was not only a record year for performance and shareholder returns but also for investments that position us to better capture market opportunities presented by secular growth drivers in our business. First, we took decisive action to add capacity throughout the year with more than $340 million in capital expenditures. This is enabling us to better navigate the near-term supply/demand imbalance while achieving our long-term growth objectives. And in 2022, we're planning to expand our internal manufacturing capacity at our factories in the US and Europe. These additional investments will create more profitable, flexible and resilient manufacturing capabilities at ADI. Now at our core, we're an innovation driven enterprise. And together with Maxim, we will invest more than $1.6 billion in R&D annually to ensure we continue developing solutions that define the edge of possible. As you know, to complement our organic efforts, we selectively use M&A to expand both our scale and our scope. In 2017, the acquisition of LTC reflected this strategy. Since acquiring the franchise, we delivered on our goal to double its historical growth rate. Equally impressive was our ability to improve on Linear's industry leading gross margins. More recently, we completed the acquisition of Maxim Integrated. Similar to previous acquisitions, we're combining the best from ADI and Maxim to develop a new operating system that enhances customer engagement and drives long term profitable growth. And I'm very pleased with the progress that we've made already. On the customer engagement side, the integration of our field teams has brought a tremendous degree of excitement. The team is already beginning to identify cross selling opportunities and building out our opportunity pipeline. From an engineering and operations perspective, our teams are coming together at a remarkable speed and we're aligning product and technology road maps to help accelerate growth in the years ahead. This combination also strengthens the diversity of our portfolio and enriches our resilient business model. To that end, we now have approximately 75,000 product SKUs and 80% of these products individually account for less than 0.1% of our total revenue. And the addition of Maxim provides us with a more comprehensive power portfolio, Maxim's primarily application focused power offerings are highly complementary with ADI's more general purpose or catalog power portfolio. This adds new SAM in all our markets and enhances cross selling opportunities, accelerating revenue growth in our $2 billion-plus power portfolio. Given these investments, we entered 2022 with an unparalleled portfolio of technology and talent aimed at capitalizing on the secular growth trends across all our markets. And now I'd like to share a few examples of how our business is at the heart of these emerging trends, starting with industrial. 2021 was a better year for our highly diversified and profitable industrial business with all applications achieving all time highs. Our unrivaled high performance portfolio continues to benefit from the mass digitalization movement across industries. Our largest industrial segment, instrumentation and test, is comprised of automated test equipment, electronic test and measurement and scientific instruments. These applications must combat increasing test times as system complexity and metrology requirements rise exponentially. For example, processors in memory and data centers are leveraging finer node geometries with higher levels of integration, which can double the test time. This challenge is our opportunity. Our innovative, purpose built solutions are bringing test time back to parity while increasing our content by more than 50%. Factory automation is one of our largest industrial segments. I believe we're at a tipping point in the Industry 4.0 as customers are looking to add sensing, edge processing and connectivity to make their supply chains more robust, efficient and, of course, flexible. ADI's precision signal chain and power franchises, sensing technologies and robust wired and wireless connectivity are critical to enabling these efforts. Looking ahead, we have an enormous opportunity to connect Maxim's rich power portfolio, which is underrepresented in the industrial sector today with ADI's strong position. Shifting now to automotive. In a year dominated by chip shortage headlines, we achieved record revenue as consumers and manufacturers are embracing electric vehicles and an enhanced in-vehicle experience. These two areas need additional semiconductor content and align very well with the strengths of both ADI and Maxim. In electric vehicles, our market leading wired and wireless battery management systems, or BMS, offer customers the highest levels of accuracy, reliability and safety as well as flexibility to scale across all battery chemistries, including the more environmentally friendly zero cobalt LFP. Our BMS position is further strengthened with Maxim. We now sell to seven of the top 10 EV manufacturers and our increased technology and product scale enables us to address new SAM. Our efficiency is also critical in electric vehicles to better optimize performance and range. Here, Maxim's strong and growing power management capabilities complement our portfolio. Now inside the vehicle, automakers are enhancing the in-cabin experience. ADI's market leading audio systems with signal processing, A2B connectivity and active road noise cancellation continues to gain traction. In 2021, our A2B franchise was designed in at five major OEMs. And since its launch in 2016, we've shipped over 50 million A2B nodes, and we expect this to double within the next three years. With Maxim, our in-cabin connectivity offerings expand to include their industry leading GMSL franchise, which is critical in architecting advanced driver assistance systems. Turning to communications. 2021 was an uneven year as strength in wired was offset by weakness in the China wireless market. Encouragingly, as we look to 2022, the proliferation of 5G is gaining momentum globally, especially in North America. In the wireless market, ADI is the leader with more than double the market share of our closest competitor. This year, we introduced the industry's first software defined radio transceiver that includes a fully integrated digital front end. This next generation transceiver platform enables us to defend and extend our position in traditional 5G and emerging O-RAN networks. Additionally, Maxim's power portfolio will support our goal to increase our power attach rate in the wireless market. In our wired business, we grew again this year as data centers and networking became increasingly vital to accelerating digitalization. Maxim more than doubles our exposure to data centers and adds new growth vectors with its power management solutions for cloud processors and accelerators, and momentum is building with a strong pipeline across traditional customers as well as hyperscalers. Finally, moving on to consumer. Our business delivered double digit growth this year as we executed on our strategy to diversify our customers' products and applications. Maxim further builds in these efforts, bringing additional power, audio and sensing capabilities and adding new applications like fast charging and gaming. Given the strong pipeline and design wins for our signal processing solutions across hearables, wearables and professional audio video, combined with our power management capabilities, I'm confident that we're on the path for continued growth. Now I'd like to focus on ESG just a little, which is now an integral part of our business strategy. Broadly speaking, I believe semiconductors can play a major role in improving our standard of living while also protecting our planetary health. For example, ADI's technology is critical to optimizing global energy efficiency from EVs and charging stations to sustainable energy and smart grids. We're not only investing in these applications, but they represent a meaningful and growing portion of ADI's revenue today. So we've made substantial progress on our ESG initiatives in 2021, including a commitment to increase the use of sustainable energy for 100% of our organic ADI manufacturing activities by 2025, up from 50% today. Actions like these will help us achieve our goal of carbon neutrality by 2030 and net zero emissions by 2050. We launched the Ocean and Climate Innovation Accelerator Consortium focused on the critical role of oceans in combating climate change. And we've enhanced our disclosure and transparency in ESG topics, especially around diversity, equity and inclusion. In the year ahead, we look to extend our ESG initiatives across the combined company and, of course, make further progress toward our goals. So in closing, I'd like to thank our employees and partners who worked tirelessly throughout this past year, helping ADI achieve these historic results. We're off to a strong start in 2022 with continued robust demand and line of sight to capacity additions. And I've never been more optimistic about ADI's future. Our industry leading position is stronger with Maxim as we expand our capabilities to capitalize on emerging secular drivers positioning us for faster growth in the years ahead. And with that, I'll hand you over to Prashanth. Prashanth Mahendra-Rajah: Thank you, Vince. Let me add my welcome to our year end earnings call. Except for revenue, my comments on the P&L and our outlook will be on a non-GAAP or adjusted basis, which excludes special items outlined in today's press release. Also, the acquisition of Maxim closed on August 26th. As such, I will discuss results inclusive of Maxim's contributions for approximately 9.5 weeks. I'll begin with a brief review of 2021. We delivered sequential revenue growth every quarter, leading to a new all time high of $7.32 billion. Gross margins of 70.9% increased 180 basis points due to favorable product mix, stronger utilization and the savings from a legacy LTC plant optimization. Operating margins of 42.4% increased 250 basis points, reflecting gross margin fall through and disciplined discretionary spending. All told, adjusted EPS increased more than 30% to a record $6.46. Turning to the fourth quarter. Revenue of $2.34 billion exceeded the midpoint of our updated guidance. Maxim's contribution to revenue was $559 million. Looking at the end market results and to give a better view into the underlying trends, I'll focus my remarks on organic ADI results. But this will be the last earnings call where we provide ADI organic commentary. Industrial represented 57% of revenue and increased slightly sequentially and 25% year-over-year with growth across every subsegment. For the full year, industrial increased 28%. This strong performance once again, is a testament to our sustained relative outperformance in the industrial market. Communications represented 16% of revenue and was flat sequentially while decreasing year-over-year. For the year, we delivered record wired sales while total comps declined due to the weakness in China wireless, largely related to geopolitical tensions. Excluding this region, total comps grew more than 20% in 2021. And overall, our [comms] geographic mix shifted with North America, Europe and Korea, now representing our largest sources of revenue. Automotive represented 15% of revenue and was down 9% sequentially as the third quarter included revenue from an IP licensing agreement. Excluding this, auto was flat sequentially. On a year-over-year basis, auto increased 15% with BMS more than doubling, reflecting our leadership position in the electrification ecosystem. For the year, auto exhibited robust broad-based growth, finishing up 36%. Consumer represented 12% of revenue and increased more than 20% sequentially and year-over-year, marking the fourth consecutive quarter of annual growth. Over a year ago, we said consumer would grow in 2021 and the team delivered on this commitment with consumer increasing 12% for the year. Moving on to the rest of the fourth quarter P&L. I'm going to speak to the results inclusive of the partial quarter of Maxim. Gross margins were 70.9%, up 90 bps year-over-year. Operating margins finished at 43.1%, up 140 basis points year-over-year. Non-op expense was $44 million and the tax rate was 12.7%. All in, adjusted EPS was $1.73 above the midpoint of guide and up more than 20% year-over-year. If we look at the balance sheet, we ended the quarter with approximately $2 billion of cash and equivalents and on a trailing 12 month pro forma basis, our net leverage ratio was 1.1 turns. Building on our ESG efforts, we continue to strategically leverage sustainable financing. We're proud to be the first US tech company to deploy three sustainable finance instruments with our inaugural green bond issuance, a sustainability linked revolving credit facility and a sustainability linked to bond offering. Specifically, this bond offering was part of our $4 billion refinancing efforts during the quarter. And as a result, we lowered our weighted average coupon to 2.7% while extending the average duration of our total debt by nearly 10 years. Inventory dollars increased slightly sequentially after adjusting for the partial quarter of Maxim activity and the fair value step-up of inventory related to the acquisition, while inventory days were down slightly. Channel inventory declined and remains below the low end of our seven to eight week target. Moving to the cash flow statement. For the year, cash flow from operations increased 36% to more than $2.7 billion. We generated a record free cash flow of $2.4 billion or approximately 33% of revenue despite CapEx more than doubling to $344 million or 4.7% of revenue. We also returned a record $3.7 billion or more than 150% of free cash flow to shareholders this year by dividends and buybacks, including 80% of our $2.5 billion ASR program. As a reminder, we plan to return 100% of free cash flow to shareholders. This is accomplished by growing our dividend annually with 40% to 60% dividend payout target and by using residual cash flow or buybacks. We entered 2022 as a much larger enterprise with an attractive long term outlook. As Vince mentioned, we plan to increase our capacity investments to support revenue growth and reinforce the resiliency and efficiency of our hybrid manufacturing model. As such, we anticipate CapEx being 6% to 8% of revenue for 2022 above our long term model of 4%. This step-up in CapEx will not impact the commitment we made in September to buy back 5 billion of shares by the end of calendar '22. So now on to the first quarter outlook. Revenue is expected to be $2.6 billion plus or minus $100 million. Based on the midpoint, we expect operating margin to be 43.3 plus or minus 70 bps. We expect non-op expenses of approximately $50 million, a 12.5% tax rate and a share count of approximately 530 million. Based on these inputs, adjusted EPS is expected to be $1.78 plus or minus $0.10. For additional context, using the fourth quarter pro forma combined revenue as a base, our guide at the midpoint implies low single digit growth quarter-on-quarter in Q1 to what is normally a seasonally weaker quarter. This growth is driven by an increase in B2B quarter-over-quarter, while consumer is down sequentially. So before closing, I want to give a brief update on our Maxim integration progress. Phase 1 of shareholder value creation is well underway, building conviction in our cost synergy timeline. We anticipate realizing over 40% of the initial $275 million OpEx and COGS synergy target in fiscal '22 with the remaining coming in fiscal '23. I'm proud of the team's effort and confident this pace of execution will continue. At our Analyst Day next spring, we'll update investors on our progress as well as provide more details on Phases 2 and 3, which relate to additional savings from infrastructure optimization and revenue synergies, respectively. Before turning to Q&A, I'd like to congratulate Mike Lucarelli on his promotion to Vice President of Investor Relations and Financial Planning and Analysis. Look forward to working with you Mike in this continued partnership. Let me hand it over to you to take Q&A. Michael Lucarelli: Thanks, Prashanth. All right. With that, let's get to our Q&A session. [Operator Instructions] With that, we have our first question, please. Operator: [Operator Instructions] Your first question comes from the line of John Pitzer with Credit Suisse. John Pitzer: Congratulations on the solid quarter. Vince, Prashanth, if I exclude kind of the Maxim revenue in the October quarter, the core ADI business just came in line with the midpoint of your original range, which is clearly not horrible. But just given strength of business and kind of your pension to tend to give upside and the view that maybe Maxim was more supply constrained than ADI. I'm just wondering if you can help us understand that dynamic and maybe it's getting rectified in the January quarter being guided above seasonal. But were there supply constraints in the quarter that impacted either revenue and/or margins? And any kind of conversation around that would be helpful. Vincent Roche: In the past quarter, our organic supply had some impact from some COVID shutdowns in Southeast Asia that affected much of the industry. We still did grow sequentially in the fourth quarter. But as we've been talking about for the last couple of quarters, our supply has been limited and revenue really is a function of supply. So that hiccup did put a little bit of pressure on the revenue line, and you'll see that correct itself as we go forward. Operator: Your next question comes from Toshiya Hari with Goldman Sachs. Toshiya Hari: Mike, congrats on the promotion. I guess I had a question on pricing and also long term supply agreements. Quite a few of your competitors or peers in the industry have talked about approaching customers, or customers approaching them about long term agreements. I think you gave a couple of comments on past calls, but if you can update us on how you're thinking about initiatives of that sort, that would be super helpful and how you're balancing that with your long-term purchases of wafer capacity. Any comments on how to think about pricing broadly going forward would be super helpful. Prashanth Mahendra-Rajah: Why don't I take pricing, and I'll let Vince kind of speak how we think about it longer term. So the short answer is, for 2021, we've been talking about rising cost inflations over the course of the year, and we've been raising our prices with the goal of neutralizing the impact to margin. I would say that in the fiscal year that just finished, cost increases and price increases were not completely synchronized. So it's very likely that cost inflation outpaced our pricing actions for the year and we're likely a modest headwind to the year. As we go into 2022, we're looking for the inverse of that. We're looking for pricing net of inflation to be a modest tailwind to the year as the price increases that have begun -- begin to get more traction. And we believe that while we still will have some cost increases over the course of the year, most of those are now baked into the run rate. Vincent Roche: Toshi, I can take a slightly longer-term view of things. I think it's true to say, certainly from our standpoint, that price increases aren't new. We've been systematically raising prices as a company for many, many years, I think we've talked about before. We continue to deliver increasing value in our new product streams. And we also maintain products for our customers that are often more than 20 years in -- 20 years old in vintage terms. We've taken a very measured approach to pricing over the last year. And we've been very transparent with our customers as well that price increases are really more about passing on costs rather than looking to enhancing our margins. Last comment on pricing. I think the industry, as we approach this kind of post-Moore's Law era, we're in an era now, I believe, of structural price increases rather than cyclical. In other words, I think you'll start to see inflation sustained for the industry in the years ahead. It's been proven over the last couple of years for certain that semis are the roots of the modern digital economy. And I think customers understand as well that importance and the value that is increasingly created by semi. So I believe that, as I said, inflation will persist. It will moderate, but I think it's a facet now of the business structure of the semi industry and indeed ADI's business. Operator: Your next question is from Tore Svanberg with Stifel. Tore Svanberg: Congratulations on the record results. Vince, you're probably not going to share revenue synergy numbers with us probably until the Analyst Day. But could you perhaps just give us some examples of potential revenue synergies between Maxim and ADI, please? Vincent Roche: I mean, there are many, many. I think I mentioned in the prepared remarks, for example, that Maxim is very underrepresented in the industrial space where ADI is very, very strong. Half our business, total business is industrial, and it's a very, very small part of Maxim's business. And where I see the opportunity there is really on the power side of things, power management, in particular. It's the fastest growing segment in the analog space. And I think generally, across the board, we're still underrepresented as a company in power. We today have approximately $2.3 billion, $2.4 billion of combined power revenues. My sense is we can double that in a reasonable period of time. And we'll give a lot more detail on that when we get to the Investor Day over the next couple of months. And from an application and market standpoint, I'd just like to point to data center. You know the power management solutions that Maxim has for companionship with cloud processors, AI machines, accelerators and so on, I think will combine very nicely with ADI's data center micromodules. And then in automotive, connectivity, Maxim's GMSL high speed link technology used in our in-cabin connectivity portfolio, will enable us to optimize solutions and address a lot more applications in the car. And that's a nice companion as well to ADI's A2B connectivity solution for audio. And last but not least, Maxim has added a lot of heft to our BMS portfolio and our portfolio now is double the size it was pre-Maxim. And as I mentioned, again, in the prepared remarks, we now sell to seven out of the top 10 OEMs in the electric car area. And there's a lot more examples but they are the primary ones I'd like to point out at this stage. Operator: Your next question is from Vivek Arya with Bank of America Securities. Vivek Arya: Vince, I just wanted to get your perspective on the shape of kind of fiscal '22 sales growth. Your Q1 outlook implies, I believe, about 19% pro forma sales growth, that's well above your closest Analog peers with an acceleration from Q4. And if I were to assume that Q1 is kind of the low point of the year and you grow supply sequentially, that points to a double digit sales growth. So I know you're not giving full year guidance, but are we thinking about it the right way? And what could be the puts and takes from a supply and then also a mix perspective as we go through the year? Vincent Roche: So I'm going to at least give you some shape on that. So when we look into 2022, we can see growth across all the various market sectors for the year. And I think it's possible that we'll see another double digit top line year for ADI. And the primary reasons, well, we've got a very strong backlog as we enter the year. We're seeing broad based demand continue. I think also, we're seeing some improvement, generally speaking. With each passing month, we're seeing improvements in supply. So I think that line of sight gives us increased confidence, that's both internally as well as externally. We are in catch up more than pricing. So I think you'll see some significant contribution in 2022 from pricing activities. And also, inventories continue to remain low in the distribution channel and, of course, on the customer side pretty much on a broad basis. So I think overall, '22 should shape up to be a good year and we've got many, many drivers there on our side. Prashanth Mahendra-Rajah: Vivek, maybe just double clicking on the supply item to provide clarity. We put in a fair amount of equipment orders for the legacy ADI operations. So we expect ADI capacity to continue to increase quarter-on-quarter over the coming fiscal year. On the Maxim side, we've done the same, but those orders only went in when the deal closed. So given the long lead times from the semi-cap guys, we're probably unlikely to see a meaningful increase in Maxim's ability to supply until the tail end of the year. So unfortunately, I think Maxim, from a fiscal year basis, will probably be a little bit of a drag on growth just because we can't get the tools fast enough. Operator: Your next question is from Ambrish Srivastava with BMO. Ambrish Srivastava: I just wanted to say thanks to Mike for providing all the web schedule that really goes a long way in transparency. So I really appreciate that. My question is on lead times and the expedites. I just wanted to see what you're seeing versus what TI highlighted, which was very different than what we've heard from other companies. So specifically, are you seeing expedites narrow down and then where are your lead times? So I think in the last earnings call, you had mentioned or in my call back, you had mentioned that you had 25% hotspots. So color on those would be helpful. Prashanth Mahendra-Rajah: Ambrish, we're really not seeing much of a change. The customer -- on customer buying behavior, book-to-bill is well above one in the fourth quarter. So our outlook to grow quarter-on-quarter for the first quarter in what is normally a seasonally weaker quarter as a reference to that. Our backlog increased and we're starting 2022 with a very high level, and we have not seen much change in cancellations or pushouts. So we're continuing to do what we have been doing and that is we're reviewing with sales and ops for red flags that would indicate there's some level of turning in the market. We haven't seen anything notable, really it's pretty strong across all end markets and all geographies. And as we've said before, we manage our business on sell-through. So we really look through distribution to get insight from where our products are going on a sell-through basis to understand what's happening in terms of who's buying and where it's being shipped to. So we're prepared for things to change but I would say right now, it continues to feel as it did a quarter ago. Vincent Roche: I think briefly from my perspective. The number of conversations that I've been having with customers certainly hasn't slowed down. And in these conversations, it's pretty clear to me that what we're being requested to support as real demand. So our customers are trying to get products out the door, and they're not building inventories at this point in time. Ambrish Srivastava: And have the lead times changed versus where they were last quarter? Prashanth Mahendra-Rajah: It depends on the product, and it depends on the market. So we have some areas where they continue to extend and others that have stabilized. So overall, lead times are above normal and it's not where we want them to be. But it's very product and market specific given the diversity of what we make and where we make it. Vincent Roche: I think it's true to say lead times have stabilized. Operator: Your next question comes from Stacy Rasgon with Bernstein Research. Stacy Rasgon: I wanted to ask a little more about the shape of the synergies. I think you had said the cost synergies would be in 40% this year and the remainder of next year. Can you give us some idea how do those split out between OpEx and gross margin and COGS, and what is the proper sort of all-in baseline for OpEx that we should be building those synergies off of? And I guess, finally, with gross margins along with same lines, given you've got pricing and other stuff as a tailwind and you see revenue growth. Do you still think that Q1 gross margins wherever they want coming out, is that the trough for the year, given how everything else flows through? Vincent Roche: So Stacy, the way to think about the cost synergies is we said roughly 40% in the coming fiscal and then the balance in 2023. The majority of the coming fiscal will actually be in cost of goods. And then in 2023, you'll see that flip to be the majority of that coming in OpEx. What else can I tell you there -- anything else [Mike] that's relevant… Michael Lucarelli: I'll call that -- that would be -- that's Phase 1. We will talk more about Phase 2 at the Analyst Day and we'll look to increase that synergy target at that time. And I think you had second question on gross margin, I'll pass it back to Prashanth… Stacy Rasgon: Also what’s the proper sort of like current like folding run rate for OpEx right now? Vincent Roche: If you look at our our first quarter guide, and that's probably a good level of run rate OpEx, I would say. In that guide, there is about $20 million of annual OpEx we took out in our fourth quarter. So maybe add $20 million to that for the run rate… Prashanth Mahendra-Rajah: On gross margins, the -- so first quarter seasonally tends to be a little bit lower because we have the holiday shutdowns and this first quarter here will have a full quarter of Maxim, which as many of you know, had lower gross margins than stand-alone ADI. So we've got some headwind coming from that. The tailwind is we've got the revenue that's coming in strong and pricing, as I mentioned earlier, is going to be -- start to be mildly accretive. So all in, I would think gross margins kind of sequentially, I think, flattish is a safe model. Vincent Roche: And you're right, on the gross margin for the year, the plan is for it to continue to rise throughout the year, assuming demand remains strong and mix doesn't change given synergies and also our pricing actions. Operator: Your next question is from Harlan Sur with JPMorgan. Harlan Sur: Congratulations on the strong results and execution. On inventories, I think you mentioned that they continue to be below your target range of seven to eight weeks. And I know that on a finished goods perspective, at least through Q3, that was down year-over-year, it was down year-to-date versus an increase in total inventories, which implies to me that consignment or direct customer inventories are also quite lean and demand is strong. And so I guess what's your view on when the team and your customers will be in a position to build back inventories or is it just hand them out for the next several quarters? Prashanth Mahendra-Rajah: I think it probably looks to be continued hand to mouth for the next couple of quarters. Our inventory numbers are a little bit confusing because of some of the map that's in there. So I'll just go back to what I said in the prepared remarks. Days of inventory was down slightly. The internal inventory balance was up as we built raw materials and WIP. You have some noise in there from Maxim's inventory being added into our middle of the quarter as well as the purchase accounting math, which requires us to do a step up of that. So adjusting for all of that, we were up slightly in terms of ADI balance sheet inventory and most of that was in WIP. On the channel side, it remains very lean and well below where we want it to be, and that causes some challenges on customer service as it does for everyone in the industry. We don't see that abating at least for the first or second quarter, and it's hard for us to see further out than that. Operator: Your last question is from C.J. Muse with Evercore. C.J. Muse: I guess a question on supply and gross margins. As you look at fiscal '22, can you speak to the growth you anticipate from internal versus external supply? And then based on that, how should we think about the implications to your gross margins? Prashanth Mahendra-Rajah: So C.J., well, let's break down the dynamics. On the internal supply, I mentioned that ADI's internal capacity will continue to improve as we go through every quarter as we bring more equipment online. On the Maxim side, I mentioned that is pretty much flat for most of the year. We're optimistic that we might be able to see some improvement towards the tail end of the year as we get more equipment in. On the external side, I will say that Vince himself is personally involved in conversations with our foundry partners and looking to get additional wafer capacity when we can, but it's very much driven by what nodes are available. And maybe I'll pass to Vince here to add a bit more comment since you've been having a lot of those conversations… Vincent Roche: I think the best answer we can give you, C.J., is that we've indicated we expect gross margins to increase throughout the year. And we've got a hybrid model. So we expect to -- against that, we're not expecting any kind of external, internal prohibitions that will impact gross margin but we expect it to increase throughout the year. Michael Lucarelli: Thanks, everyone, for joining the call this morning. A content transcript will be available on our Web site and all available reconciliations and this information can also be found there. Thanks again for joining us and your continued [Technical Difficulty] Analog Devices. Have a great Thanksgiving. Prashanth Mahendra-Rajah: Happy Thanksgiving, everyone. Operator: This concludes today's Analog Devices conference call. You may now disconnect. Speakers, please hold the line.

Operator: Good morning. And welcome to the Analog Devices Third Quarter Fiscal Year 2021 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, Senior Director of Investor Relations. Sir, the floor is yours. Mike Lucarelli: Thank you, Shelby. And good morning, everybody. Thanks for joining our third quarter fiscal 2021 conference call. With me on the call, today are ADI's CEO, Vincent Roche, and ADI's CFO, Prashanth Mahendra-Rajah. Anyone who missed the release, can find it and relatIng financial schedules at investor.analog.com. And onto the disclosures. The information we're about to discuss includes forward-looking statements which are subject to certain risks and uncertainties as described in our earnings release, and our most recent 10-Q and other periodic reports and materials follow the SEC. Actual results could differ materially from this forward-looking information as these statements reflect our expectations only as of the date of this call. We undertake no obligation to update these statements except as required by law. Our comment today will also include non-GAAP financial measures, which exclude special items. When comparing results to our historical performance, special items are also excluded from prior to last period's. Reconciliations of these non-GAAP measures to the most drastic comparable GAAP measures, and additional information about our non-GAAP are included in today's earnings release. And with that, I'll turn it over to ADI's CEO, Vince Roche. Vince? Vince Roche: Thank you, Mike. And a very good morning to everybody. So, ADI delivered a second consecutive Quarter of record revenue and earnings, despite the challenging supply environments. Our strong performance was driven by continued operational excellence and insatiable demand as semiconductors power the modern digital age. Broadly speaking, the economic recovery continues to take shape with demand still far exceeding supply. We, like many others in our industry, will face a constrained supply environment into 2022. Despite this backdrop, our business continues to achieve record results as our investments and design win over the last few years are matched with strong demand across our end markets. So looking ahead, the combination of robust bookings, lean inventories, and ongoing capacity additions position ADI to close Fiscal '21 on a high note and continue to grow in the next year. So moving to our third-quarter results, revenue was $1.76 billion up 21% year-over-year. All markets increased sequentially with industrial and automotive once again, achieving the record. The gross margin expanded to over 71% and the Operating margin over 43%. Adjusted EPS of $1.72 increased 27% year-over-year. Despite elevated capital spending to increase our capacity, free cash flow over the trailing 12 months was $2.2 billion. This equates to a 34% free cash flow margin, maintaining our position in the top 10% of the S&P 500. Overall, I'm very pleased with our performance and our team's outstanding execution. As you know, at ADI, our ethos of innovation and deep customer engagements ensure that we stay ahead of what's possible. We invest more than a billion dollars annually in R&D focused on strengthening our core franchises and capturing market opportunities presented by sector growth records, which have accelerated the economic recovery. Now, let me share some recent highlights with you. Our industrial business is our most diverse segment across customers, products, and applications and features sticky long product lifecycles. Our largest industrial segment, instrumentation, and test, is comprised of automated test equipment, electronic test and measurement, and scientific instruments. This is truly a performance-driven market that aligns perfectly with our high-performance precision Signal Chain, Power management, and RF portfolios. Importantly, instrumentation and text are aligned with all secular growth trends from connectivity to EVs to sustainability. The growing technical complexity of these applications required more testers with more advanced performance capabilities. Today, ADI is the leader in communications tests. And we're collaborating with Keysight, for example, to advance the development of O-RAN solutions. This partnership will enable the fastest path for the design and cost-effective and power-efficient radio units. Looking ahead, we're already beginning to partner with our customers to test emerging 6G technologies. Our innovations in the instrumentation market also have a positive impact on human and planetary health. One particular area is our environmental monitoring business, where there's an increased need for highly reliable and accurate instruments to improve the standard of living globally. Our market-leading portfolio of precision converters enables 10 times greater measurement resolution of fine particulate matter, better identifying trace pollution. The next largest industrial segment is factory automation. Over the last year, many of our customers are rethinking their factory flows and supply chains to make them more resilient, cost-effective, and flexible through automation and connectivity. To achieve this, our customers will further automate their businesses with intelligent and connected factories, and increase their use of robots and cobots. Specifically, cobots require ADI's precision signal chain and power franchises sensing technologies, and robust wired and wireless connectivity. This new vector of growth increases our sum opportunity by three times that of a traditional robot. To that end, our precision motion control business is on track for a record year of design wins, including a recent win at a leading Japanese robotics Company for its next-generation robots. In addition, we are leveraging our domain knowledge and system-level expertise in a collaboration with Universal Robots to design smaller, smarter, and easier-to-use robots that help scale tasks safely and transform workforces. We're turning now to our Communications business. 5G is beginning to broaden globally, especially in North America, as carriers look to deploy newly acquired C-band spectrum and all-round continues to gain momentum also, with several of the largest European carriers setting ambitious 2025 all-round deployment targets. This includes Vodafone where our technologies are very well represented. This quarter we extended our market-leading position in 5G radio solutions with the introduction of the industry's first software-defined transceiver that includes a fully integrated digital front end. Our innovative radio architecture greatly improves power efficiency, thereby reducing radio weight, size, and carrier expenses. This high level of integration eliminates FPGAs to simplify implementation and facilitate the proliferation of these emerging O-RAN networks. Our next-generation receiver platform is already designed at a major Tier-1 global supplier that is gaining share in this 5 G and O-RAN deployments across North America as well as Europe. Stepping back, we expect our communications business to return to growth in 2022. We have strong design momentum and our geographic mix has shifted with North America, Europe, and Korea representing our largest sources of revenue. Moving now on to automotive. Over the last 2 years, we've realigned our business to focus on electrification and the in-cabin human experience. We're seeing the benefits of this strategy as we continue to scale our market leadership in battery management, power management, audio systems, and connectivity. Starting firstly with our battery management systems or BMS, our wired and wireless portfolios provide unmatched accuracy to deliver market-leading vehicle range and can measure all key battery chemistries, including zero-Cobalt LFP. Additionally, our solutions incorporate ASLD functional safety and an ultra-low power continuous monitoring feature that ensures the battery remains stable even while parked, which is a first in the market. In addition, this quarter marked the first time we recognized revenue for our wireless BMS solution as General Motors prepares to ship its first of 30 EV models powered by the OTM battery platform. And this is just the beginning of this groundbreaking BMS technology as OEMs realized the power of wireless data in scaling their fleets. Turning to audio systems and connectivity. As complexity continues to increase, there's a very strong demand for our market-leading audio systems with signal processing. A2B connectivity, and active road noise cancellation. Our solutions offer the highest fidelity performance in the market while reducing vehicle weight, removing nearly 100 pounds per vehicle. During quarter 2 leading OEMs adopted A2B and a Top 3 European vehicle manufacturer implemented A2B as its audio connectivity standard across its entire fleet. In total, A2B is now designed in over 30 OEMs, including 18 of the top 20 global automotive Companies. Furthermore, interest in our active road noise cancellation feature continues to intensify. We're designed in at 9 OEMs, up from 5 just a year ago, including Hyundai and a leading EV manufacturer. The gadget capability can more than doubled the value of our A2B solution. These are just a few of the countless examples of the tremendous work underway at ADI. We remain focused on delivering breakthrough innovations to stay ahead of our customer's needs. So in closing, I have never been more confident about ADI's future. Over the last decade, we've built an industry-leading portfolio with unparalleled breadth and depth of capabilities that are aligned with more profitable end markets. And our portfolio and leadership position will only get stronger with the acquisition of Maxim, enabling us to deliver strong returns in the years to come. And so with that, I'll hand you over to Prashanth. Prashanth Mahendra-Rajah: Thank you, Vince. Good morning and welcome to our third-quarter earnings call. My comment today with the exception of revenue and non-op expenses will be on an adjusted basis, which excludes special items outlined in today's press release. ADI delivered exceptional third-quarter results, underpinned by our ability to increase production. Revenue and EPS reached all-time highs for the second straight quarter, with continued gross and Operating margin expansion. If we look at performance by end-market, industrial represented 57% of revenue and increased 3% sequentially and 29% year-over-year. Notably, this business surpassed $1 billion of quarterly revenue for the first time. We experienced broad-based strength across applications and geographies. All subsegments increased double-digits year-over-year, except healthcare, given the elevated pandemic demand a year ago. Communications represented 16% of revenue and decreased 21% year-over-year, while up 4% sequentially with growth in both wireless and wirelines. As we outlined last quarter, we believe our communications revenue has bottomed and we'll continue to grow as 5G deployments broaden globally, especially in North America. Automotive represented 16% of revenue and increased 13% sequentially, and 80% year-over-year. Strength was broad-based with double-digit growth across every major application. BMS and A2B remain our fastest-growing applications and both are on track to nearly double in size this year. As Vince shared earlier, ADI has been strategically pivoting resources to focus more aggressively on electrification and the in-cabin human experience. As part of this strategy, we are licensing select radar IP to a large European Tier-1 auto supplier. This resulted in immediate revenue recognition of 24 million in the quarter. Consumer represented 10% of revenue and increased 16% both sequentially and year-over-year. Our strategy to diversify and grow this business in Fiscal '21 is working, as strength across home entertainment wearables, and wearables more than offset a decline in portables. And now moving to the P&L, gross margin expanded sequentially and year-over-year, finishing at 71.6% mainly due to the cost savings from the LPC manufacturing optimization and the IP license agreement. OpEx in the quarter was 493 million up modestly sequentially, due to a full quarter of mere increases and continued strong variable comp. This netted an Op margin of 43.6%, which marks the 5th straight quarter of year-over-year Op margin expansion, underscoring the strong leverage in our business. Non-op expenses were 37 million below our typical quarterly run rate of approximately 43 due to an investment gain. And our tax rate was approximately 12%, which gives us an adjusted EPS at $1.72, including $0.05 of upside attributable to the IP licensing agreement. Moving onto the balance sheet, we finished the quarter with an ending cash balance of 1.5 billion and a net leverage ratio of 1.2 times. Relative to the second quarter, inventory dollars increased by 16 million, driven entirely by raw materials and the working process. Days of inventory were unchanged at 118 and weeks of channel inventory remain well below the low-end of our seven to eight-week target, as sell-through remains stronger than sell-in. Capex for the quarter was $86 million up meaningfully sequentially, as we continue to add capacity to support our robust and growing order book, which now stretches into Fiscal '22. We will continue to increase capacity in the fourth quarter resulting in full-year capital intensity above our long-term model of 4%. In turning to free cash flow, we generated more than $2.2 billion over the trailing 12 months, up 23% from a year ago. And this represented a 34% free cash flow margin. Over this same period, we have returned nearly 85% of free cash flow after debt repayments via $970 million in dividends and over $500 million in share repurchases. And now onto the Fourth Quarter outlook: Revenue is expected to be $1.78 billion, plus or minus $70 million, up sequentially as additional capacity comes online. At the midpoint, excluding the automotive IP licensing revenue, we expect each of our B2B markets to increase sequentially, led by communications and consumers to be up to 5 single digits. Based on the midpoint of the guide, we expect to deliver a record gross margin. And for operating margins to be 43.7% plus or minus 100 bps. Our tax rate is expected to fall toward the upper end of our range. And based on these inputs, adjusted EPS is expected to be $1.72 plus or minus $0.11. So before moving to the Q&A, I'd like to give a brief update on Maxim. Our discussions with the Chinese Regulatory Authorities have been productive, and we're working towards closing within the initial timeframe. We plan on closing no later than the 3rd business day after China approval has been granted. As we shared before, shortly after the close, we will hold a conference call to provide an update on our capital return plans. Once combined, we anticipate having nearly 4 billion of cash on our balance sheet, a leverage ratio well below one, and more than 3 billion of annual free cash flow. I'll now turn it over to Mike to start the Q&A. Mike Lucarelli: Thanks, Prashanth. Let's get to our Q&A session. We ask that you limit yourself to 1 question in order to allow for additional participants on the call this morning. If you have a follow-up question, please re-queue and we will take your questions if time allows. With that, to our first question, please. Operator: If you are listening on a speakerphone, please pick up the handset when asking your question. We'll pause for just a moment to compile the Q&A roster. Your first question is from Vivek Arya of Bank of America Securities. Vivek Arya: Thanks for taking my question. Once you mentioned demand far exceeds supply, I was hoping if you could help us quantify that. Are you under-shipping by 5%, 10%? How much of a demand cushion does ADI have right now? And kind of Part B of that is how much incremental capacity are you planning to bring online in the next year and is that kind of a proxy for what kind of sales growth we should be looking at? Thank you. Prashanth Mahendra-Rajah: Thanks, Vivek. So demand continues to grow across our markets. All end markets are up and our book-to-bill was above 1.2. Supply is also expanding. We grew 4% sequentially in the third quarter, and we're at the midpoint, we're going to be up another 3% for the fourth quarter. So you look at that math and it says the supply-demand gap is growing or said another way, the backlog is increasing quarter-over-quarter and it now extends well into 2022. Our view is this gap is likely to persist into calendar year '22 given the long lead time it takes to add supply in the industry plus just the broad strength of the demand. Vince Roche: Yeah, I think the second part of that question, Vivek, just a little bit of color. So, we're leering an investment in CapEx to support our growth objectives, particularly on the backend of our operation, assembly, and test. And we need this capital now to meet the demand, but also in the longer term, we're very, very optimistic about the tailwinds right across our business, from automation to electrification, connectivity, and so on and so forth. The outlook we've just given you supplies feasible and it is certainly the governor, I would say, right now on revenue for the Company. Vivek Arya: Thank you. Mike Lucarelli: Thanks, Vivek. We go to the next question, please. Operator: Your next question is from Tore Svanberg of Stifel. Tore Svanberg: Yes. Thank you. I was hoping you could just elaborate a little bit more on the Maxim merger. You said that you'd still expect it to happen within the timeframe you had announced. I believe you had said the summer of 2021, correct me if that was wrong. And related to that is, again, China the only remaining obstacle before you can close the deal? Vince Roche: Thanks, Tore. So look our confidence in the closing remains unchanged. And as we said in the prepared comments, our discussions with the Chinese Regulatory Authorities have been positive and productive. And we are working towards closing within the initial timeframe. So China is the only outstanding regulatory approval need at this point in time. And I will remind you as well that all of the other regulatory bodies across the globe have approved our deal without condition, without remedies. Tore Svanberg: Great. Thank you for that, Vince. Mike Lucarelli: Thanks, Tore. Go to the next questions. Operator: Your next question is from John Pitzer of Credit Suisse. John Pitzer: Good morning, guys. Thanks for letting me ask the question, Vince, I wanted to pick up on your prepared comments about your industrial business. You're now going in the third consecutive quarter of sort of record revenue s in that business. You have to go back to April of '18 before -- which was the last peak. But -- but the other date -- but fiscal year to date, that business is up about 30% year-over-year, and for a lot of investors, they're concerned that perhaps that represents more cyclical excess than structural sustainability. And so I'm kind of curious as you break apart your industrial business. What do you think is being driven by the " cycle versus stuff that's a little bit more sustainable? " Vince Roche: Yes. Thanks, John (ph). First and foremost, I'd like to remind everybody that ADI's industrial business is built on a foundation of many individual market segments like automation, instrumentation that I talked about, healthcare, our space business, and energy, as it moves to renewables and charging infrastructure, for example, the whole need for grid efficiency and stabilization. So that's the foundation. It's a highly diverse business. We've got many tens of thousands of customers. And, you know, the lifecycles in the business are 15 years plus. And it's a very, very, very sticky socket that we've got. So, those of you who followed ADI for a long time, remember about a decade ago, we fairly dramatically increased our focus in terms of R&D, go-to-market activities, in ensuring that we could really grow that business. And the last years have shown that we've been getting market share across the board there. So I think there were a lot of programs that were stalled last year, so there's a certain amount of catch-up there. But I do think that the breadth of the portfolio that we know has the investments we've been making in terms of customer engagement, R&D activities, and the secular trends that we've got all these concurrent secular drivers are propelling that business beyond the market. Mike Lucarelli: I'll add one thing, John. You're right. As you've seen in our prepared comments, all the markets did increase double-digits year-over-year. Of our 6 applications that Vince outlined, 2 are still below pre-peak levels. We do think Fiscal '21 marks a record for all of them and we don't see why they won't hit another record in '22 given the strong trends that Vince outlined. And with that, we'll go to our next question. Operator: Your next question is from Stacy Rasgon of Bernstein Research. Stacy Rasgon: Hi guys. Thanks for taking my questions. I had a question about the pricing environment. Given just the tight supply and the shortage situation, we're starting to see some hints of some of your peers starting to take prices up. And I was curious what you guys are seeing in the pricing environment. Are you seeing that? Are you able to actually do that? Are you trading your own pricing environment down more conservatively? Prashanth Mahendra-Rajah: Yes. Thanks for the question, Stacy. So I would say that for the results that we printed, pricing is net-neutral. We're passing on cost increase so that we're not impacting margins, but we've made a decision not to take advantage of our customers by structurally increasing pricing in this environment. Our long-term model is unchanged and that is 70% plus. So the goal really is to drive the revenue growth and make the trade-offs that are necessary to drive that revenue growth. Focusing on delivering on the top margin and the free cash flow. So you'll see, if you back out the IP license impact, we had a 71.2% gross margin in the third quarter. And while we don't guide to gross margins, if you impute it from the guide that we gave you, the fourth quarter is going to probably be a record for ADI in terms of gross margins. Stacy Rasgon: Got it. That's helpful. Thank you. Mike Lucarelli: Thank Stacy. Next question. Operator: Your next question is from Toshiya Hari of Goldman Sachs. Toshiya Hari: Hi guys. Good morning. Thanks for taking the question. I wanted to ask about the comms business. Vince, you talked about 2022 being a growth year, and you talked about North America, Europe, and Korea being the key drivers for you guys going forward. How should we think about the shape of the recovery going forward? Is it going to be a fairly gradual recovery? Could it be sort of a V-shaped recovery over the next couple of quarters? And when you talk about the return to growth in '22, what's sort of implicit assumption are you making for China? Thank you. Prashanth Mahendra-Rajah: Okay. Thanks. We're going to split that into 2. Let me just quickly talk about what happened and then I'll let Vince speak too more broadly. In the second quarter, as a reminder, we did call the bottom on comms and said that we would grow on a sequential basis. We delivered that in the third quarter and we are on track to deliver that for the fourth quarter. So we believe we're really well-positioned for strong growth into Fiscal '22. And between the two sub-segments there, wire demand remains strong and we expect that to continue as both carriers and data centers continue to do the upgrades to their networks. And wireless, it's always lumpy, growth in the past quarter was really driven by the rest of the world. North America. We do think China bottomed in the third quarter. So that should also represent some growth momentum for us as we go forward. And then I'll hand off to Vince to kind of speak more broadly about what we're seeing. Vince Roche: Yes, Toshiya, why do I have the confidence I have about 2022 being a strong growth year? So maybe I can unpack that a bit for you. So I think our comms' revenue mix is seeing a benefit from the rest of the world beginning to emerge in 5G. So today, the rest of the world outside of China is 3x in terms of the term. So that's number 1. If you look at then the geographies of North America, the auction to C-band auction's complete. Revenue's really just beginning here. And all the indications are that 5G revenue here will accelerate in 2022 and indeed beyond. Europe, it's -- I would say, a step behind, but we're beginning to see good signs of life in that region but I think it'll be a more elite 2022 driver. We've talked several times in various calls here about O-RAN, what's happening, but we're beginning to see revenue. We've talked before about Rakuten in Japan, that business continues to accelerate. And European carriers are looking right in to make it also an important part of their 5G offering. I mentioned during the prepared remarks as well that Vodafone is a major player there and we happen to be very well represented in their systems. And I'm also having conversations with customers about the use of 5G and O-RAN beyond the classical consumer market. So it's early days, but the characteristics of flexibility, scalability, quicker time-to-market, cost savings, and so on, are enabling private Networks to be configured in factory environments, for example. So that's all still on the comm, but that gives you a sense of our confidence in 2022 and beyond. Mike Lucarelli: Thanks, Toshiya. Toshiya Hari: Thank you. We'll go to the next question. Operator: Your next question is from Ambrish Srivastava of BMO. Ambrish Srivastava: Hey, thank you. Good morning, folks. I have a question about Maxim. And so my investment case for ADI has not been Maxim and you have a very sticky shareholder base who have been with you before Maxim, but I get this question a lot, so I think it's a fair question to ask. If Maxim was not to go through, what do you think about capital allocation? Do you then go back to the playbook and say you would be changing how you think about capital allocation or you would continue on the M&A path and look at other opportunities? Thank you. Prashanth Mahendra-Rajah: So, in response to this, let me just remind everyone what the capital allocation policy is today because I think that we have a very shareholder-friendly capital allocation policy. This is, that first call is really to invest in the business and that, although not a traditional definition, we do consider that organically kind of how we spend our R&D, and that is heavily pointed towards the B2B markets. And then we think about inorganic really more as it helps the technology portfolio or finds other ways to help us become more important to customers. But our commitment is to return 100% of free cash flow to customers. So, we are at 1.2 level leverage today. We do not need to reduce debt. So on a -- in an environment, despite the confidence that we have in the Maxim deal closing in an environment where that was not to have happened, would not look for us to really be changing that view of having all our incremental free cash flow go return to shareholders either through buybacks or through dividend. And as a reminder, I think over the past 3 years, we've averaged about a 10% increase in our dividend. So a very healthy commitment for our fixed income-focused investors as well as the repo. I think we're on track this year for an all-time high in terms of our repo activity. Back to the M&A, I'm going to hand that one to Vince to talk more about the alternatives there. Vince Roche: Yes. So as you know, you've seen over the years, we've always acquired very, very high-quality assets, and that will remain to be our view on things in the years ahead as well. Ambrish Srivastava: Okay. Thank you. Mike Lucarelli: Thanks. Ambrish. Next caller. Operator: Your next question is from Blayne Curtis of Barclays. Blayne Curtis: Hey, good morning. Thanks for taking the question. Just curious if you looked at the B2B guidance, it's fairly flat, as I think industrial probably is flat given the slug segment guidance you gave. I'm just kind of curious as you look at this. Obviously, you had strong comments on the bookings. Is that gap really supply or are you starting to see demand tends to start to settle out at this level? Prashanth Mahendra-Rajah: That is purely clearly supplied. I think I mentioned in maybe the first or second question that book-to-bill for the quarter was over 1.2 and that's across all markets. So we are seeing very strong interest in products across all markets. Mike indicated in one of the other Q&A that they were likely to have the industrial markets hit an all-time high collectively for a calendar for Fiscal year '21 and expect that to continue to be on track to another record in FY '22. So very much a supply-constrained environment. Blayne Curtis: Thanks and I just want to follow up on the gross margin, Prashanth. So you indicated the gross margin would be up and I think that's with the license impact as well. So you saw a benefit from the linear. I was curious how much more there is of that as a benefit. And then maybe just talk about utilizations and another pulling gross margin as you look over the next couple of quarters. Prashanth Mahendra-Rajah: Yes. So I presume you're asking with respect to the guidance. So in the fourth quarter, and we're not guiding gross margins, but we're pretty confident we are going to hit a new record for gross margins that are coming from the LTC synergies, I think we hit the final phase of closing down the manufacturing operation in California. We still have an opportunity as soon as the supply environment allows us to get some additional savings out of Asia because we haven't closed that facility up because we have no time to shift the tools to their new location. Utilization is also going to provide some level of increase. I would say the mix is a bit of a headwind into the Fourth Quarter. And Fourth Quarters typically have some level of challenges in terms of a holiday shutdown. So, we need to manage through that, which can provide a little bit of headwind for us as well that we got to work ourselves around. Vince Roche: You know, the foundation for our gross margins being where they are, It's the number 1 innovation. We produced the best performing solutions between the physical and digital worlds and we got a premium. We got very, very well paid for doing that. Also, the diversity of our products and customer portfolios, 125,000 customers with I think I've said this before, 85% of our sales come from products that individually contributed less than 0.1%. And the pricing environment, as we said earlier on the call, has been very, very stable, very steady. Mike Lucarelli: Thanks, Blayne, for that two-part, one-part question. We'll go to the next caller, please. Operator: Your next question is from Harlan Sur of JPMorgan. Harlan Sur: Good morning and congratulations on the strong results in quarterly execution. Channel inventories continue to remain below your target 7 to the 8-week range. You guys can also monitor direct customer inventories at least for those that are on consignment programs. Any signs that customers have been able to build inventories? I mean, it seems unlikely because the entire value chain appears to be sort of hand-to-mouth from a chip supply perspective, but I wanted to get your views. And when do you believe customers will be in a position to start to build that inventory? I'm assuming the soonest is sometime in calendar '22, but I wanted to get your views as well. Prashanth Mahendra-Rajah: Yes. Thank you, Harlan Sur. I'll take that. So first, a couple of comments on inventory. Inventory on our balance sheet is up year-over-year and sequentially, but that is exclusively due to raw materials and width. We can't keep a finished good in stock. So when it's produced, it either goes to the customer or it goes into the channel, and then it goes out of the channel immediately. So we are struggling to build finished goods inventory both in ADI warehouses as well as in our channel partners. Roughly, let's say a significant amount of our auto business is on consignment which gives us good visibility for that direct business as to what's happening there. And that is also we are seeing that demand pull through pretty quickly and no opportunity for those auto customers to build the inventory within their warehouses, but that's on our books. So it's still very much hand-to-mouth and the focus that we have as we've talked throughout this call and in the prepared remarks is on increasing our capacity or ability to supply by making some significant investments in capacity. I don't see this balance coming into some sense of normalcy until sometime in calendar year '22. Harlan Sur: Okay, thank you. Mike Lucarelli: All right. We'll have our last question, please. Operator: Your next question is from William Stein of Trust Securities William Stein: Great, thanks for taking my question. You just talked about inventory not coming to some level of ability to rebuild anything until sometime in '22, you talked about the supply debate about lasting. We're well into '22, which put you up to the bill, etc. When we look out to the next quarter, the January quarter, typically, that's a sequentially down quarter in automotive, industrial, consumer, and for the whole business as well. But given these supply constraints of this very significant backlog, should we think about that seasonality as different in the coming year? Should we expect maybe some visibility to sequential growth for the next several quarters? Thank you. Prashanth Mahendra-Rajah: Yeah, I think the way to answer that would be to say that seasonality in today's environment is a bit of a meaningless concept because revenue growth is really dictated completely by supply. So the print for Q1 is likely to be driven by what more capacity we can get online over the fourth quarter to allow us. Again now we've got a couple of things we need to work through in the first quarter that would be a little bit of an offset. And first, there's the holiday season. So we do need to adjust factory capacity for that. And fourth quarter is the key quarter for the consumer; that's when they build for the holiday season. So there's always going to be a little bit of seasonality impact for the consumer just because they don't need it in our fiscal first quarter as that is the holiday period. So maybe that's where I will finish. Mike, anything you want to add to that? Mike Lucarelli: Yeah, sure. I guess if you look back, you're right. We talk about seasonality not being as meaningful now, but just give you a bit of a history lesson. If you look past over the past 10 years, you're right, our B2B markets, I would say in good times, which I would call now good times, it's usually flatted down slightly in 1Q and consumer, I will say in good and even normal times it down 5% or maybe more in 1Q. And with that, I want to thank everyone for joining the call this morning. A copy of the transcript will be available on our website. And all reconciliations and additional information can also be found in the Quarterly Results section. Thanks again for joining and your continued interest in ADI. Operator: This concludes today's Analog Devices Conference Call. You may now disconnect.

Operator: Good morning, and welcome to the Analog Devices Second Quarter Fiscal Year 2021 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. Mike Lucarelli, Senior Director of Investor Relations. Sir, the floor is yours. Mike Lucarelli: Thank you, Cheryl, and good morning, everybody. Thanks for joining our second quarter fiscal 2021 call. With me on the call today are ADI's CEO, Vincent Roche; and ADI's CFO, Prashanth Mahendra-Rajah. For anyone who missed the release, you can find it and relating financial schedules at investor.analog.com. Now onto the disclosures. The information we're about to discuss includes forward-looking statements, which are subject to certain risks and uncertainties, as further described in our earnings release and our most recent 10-Q and other periodic reports and materials filed with the SEC. Actual results could differ materially from the forward-looking information as these statements reflect our expectations only as of the date of this call. We undertake no obligation to update these statements, except as required by law. Our comments today will also include non-GAAP financial measures, which exclude special items. When comparing our results to our historical performance, special items are also excluded from prior periods. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures and additional information about our non-GAAP measures are included in today's earnings release. And with that, I'll turn it over to ADI's CEO, Vincent Roche. Vince? Vince Roche: Thank you, Mike, and good morning to you all. So I'm very pleased to share with you that we delivered record revenue and earnings in the second quarter, exceeding the high end of our outlook. This strength was driven by our disciplined operational execution and our ability to capture the value presented as our solutions become more vital in the modern digital economy. The supply and demand dynamics in our industry have been well publicized. Broadly speaking, the economic recovery has materialized faster and stronger than initially anticipated, placing unprecedented stress on supply chains globally. Late last year, ADI moved with speed and agility, proactively making capital investments to add capacity, positioning us to navigate this disruption and better serve our customers. That said, we, like many others in the industry, will face a supply constrained environment through the balance of 2021. Despite this backdrop, we're positioned for a strong second half as our continued capital investments are aligned with robust demand. Moving to a summary of our results. Revenue was $1.66 billion, increasing 26% year-over-year. The strength was broad based, highlighted by record quarters for our industrial and automotive markets. Gross margin expanded to nearly 71% and operating margin to approximately 42%. Adjusted EPS of $1.54 increased 43% year-over-year. Over the trailing 12 months, we generated $2.2 billion of free cash flow. This equates to a record 36% free cash flow margin, maintaining our position in the top 10% of the S&P 500. So overall, I'm very proud how the ADI team executed this quarter to deliver these impressive results. At ADI, innovation is the root of how we generate value. And to maintain our virtuous cycle of innovation driven success, we invest more than $1 billion in R&D annually. This commitment coupled with the diversity of our business across customers, products and applications, positions us to deliver long-term profitable growth. Now let me share a few customer highlights with you. ADI solutions are embedded across the electrification ecosystem from developing and managing the vehicle battery to the distribution and storage across the digital grid. With the rapid shift to EVs, we're seeing new and increasing investments in battery manufacturing capacity. This quarter, we secured a design win with the supplier of one of the world's top battery producers. Our innovative solution reduces system cost by half by integrating all measurement, control and diagnostics functions. And our portfolio of wired and wireless BMS provides unmatched accuracy to deliver market leading vehicle range as we grow and diversify our BMS business. This quarter, we added Volvo as well as three additional large auto manufacturers, including a prominent luxury brand in Europe and two leading brands in Asia. Moving on to energy infrastructure. Here, energy storage systems are required to make renewable energy a reality and to build the charging infrastructure to support EV proliferation. Our precision Signal Chain Power management and BMS portfolios delivered the level of accuracy necessary to ensure a consistent supply across the digital grid. We have design wins of more than 80% of the top customers, from traditional energy and industrial companies to new entrants. Another area of increasing importance for ADI’s connectivity, which of course is becoming more pervasive across demographics and industries, presenting new opportunities for us. For example, in our communications business, we announced the complete radio platform for the 5G O-RAN ecosystem. This radio platform builds on our market leading integrated transceiver position by expanding into the digital frontend. Our full system solution enables significant size and performance improvements, while reducing customers’ design cycles. O-RAN represents a new vector of growth in the communications market by enabling new entrance and applications, such as private networks that support connected factories. In addition to the partnerships with Intel and Marvell, we are working with key carriers and system integrators to enable this ecosystem. In our space business, our beamforming solution will be used in Telesat Lightspeed LEO satellite constellation scheduled to launch in late 2023. This win speaks to the breadth and depth of our RF portfolio and domain expertise at ADI, which is supporting the adoption broadly of LEO communication satellites. Additionally, we continue to have strong design momentum across our diversified industrial market, the largest, stickiest and most profitable business at ADI. Over the years, we've established a heritage of providing the most precise and efficient solutions required by our factory automation customers. I believe we're at a tipping point in Industrial 4.0 as customers are looking to add sensing, edge processing, and connectivity to make supply chains more robust, more efficient and flexible. We recently won an ultra-high frequency wireless solution at a key automation company. Our solution is being used in advanced robotic systems to reduce downtime and costs. On the wired side, customers are beginning to upgrade to deterministic Ethernet to ensure machines are constantly connected and monitored. This quarter, we secured numerous design wins for a robust Ethernet solution, including two of the largest European industrial machine manufacturers. We recently hosted a deep dive on our instrumentation and test business. This is truly a performance-driven market that requires ADI’s most advanced technology and solutions, making it a great fit for our high-performance precision Signal Chain Power and RF portfolios. Our broad diverse instrumentation business comprised of automated test equipment, electronic test and measurement and scientific instruments is aligned with all secular growth trends across our industry. The increasing complexity of these applications is driving the need for solutions with more advanced technology capabilities. As a result, we expect our SEM to increase by over 20% in the next five years. Now these examples represent only a fraction of the incredible work across ADI. Our team is partnering with our customers everyday to develop increasingly innovative technologies that not only create successful business outcomes, but also enrich people's lives and leave a greater impact on our world. To that end, I wanted to share an exciting update on how we're leveraging innovation to advance our mission of Engineering Good. In April, we launched an innovation accelerator with the Woods Hole Oceanographic Institution. As part of this program, we'll be combining ADI’s engineers and technologies with WHOI’s science and technology platforms to continuously monitor critical oceanographic conditions. This effort supports our overall climate agenda, which includes our commitments to achieving carbon neutrality by 2030 and net zero emissions by 2050. We also published our 2020 Corporate Responsibility Report last week, which provides additional information on how our technologies will continue to play a major role in improving our standard of living, while protecting our planetary health. So in closing, the last year has underscored how semiconductors as the bedrock of the modern digital economy and information age are increasingly important to accelerating digitalization across all industries. We're encouraged by our results this quarter, and the momentum in our pipeline sets the stage for continued profitable growth in the years ahead. So with that, I'll hand you over to Prashanth who will take you through the financial details. Prashanth Mahendra-Rajah: Thank you, Vince. Good morning, and let me add my welcome to our second quarter earnings call. My comments today with the exception of revenue and non-op expenses will be on an adjusted basis, which excludes special items outlined in today's press release. ADI delivered a record second quarter as revenue, operating margin and EPS finished above the high end of our outlook. As I mentioned last quarter, upside to our second quarter outlook would be predicated on our ability to increase production. And thanks to early strategic investments in capacity, as well as strong execution by our manufacturing operations team, we did just that. Now let's look at performance by end market. Industrial represented 59% of revenue and increased 14% sequentially, and 36% year-over-year. This quarter marks the second consecutive all-time high for industrial. We saw strength across all applications and geographies, with all sub-segments growing double digits sequentially and year-over-year. Communications represented 17% of revenue, fell slightly sequentially and was flat year-over-year. Wireline increased double digits year-over-year, which balanced softness in wireless. As we outlined in the last call, 5G builds have been muted year-to-date. However, we anticipate momentum to pick up as 5G deployments broadened globally in the second half of this year, especially in North America, now that the C-band auction is complete. Automotive represented 16% of revenue and increased 5% sequentially, and 42% year-over-year. Again, we saw double digit growth across every major application as industry production has picked up notably from a year ago. BMS grew the fastest, more than doubling year-over-year. And lastly, consumer decreased 12% sequentially in the seasonally weaker second quarter and represented 9% of revenue. Importantly, consumer grew 8% year-over-year, positioning us to deliver growth in fiscal '21. Now covering the rest of the P&L, gross margin finished just under 71%, up 90 basis points sequentially and 320 basis points year-over-year on higher utilization and better product mix. We expect additional gross margin expansion in the second half as we realize savings from the consolidation of our manufacturing operations. OpEx in the quarter was 484 million, up sequentially and year-over-year. Merit increases went into effect during the second quarter and we also recorded higher variable comp due to the strong results. This netted operating margin of 41.7%, non-op expenses were 44 million, down nearly 10% from the prior year driven by lower interest expense. Our tax rate was approximately 12%. And all-in, adjusted EPS of $1.54 exceeded the high end of our outlook and marks an all-time high. Now moving on to the balance sheet. Relative to the first quarter, inventory dollars increased 23 million to a record 641 million. This increase was driven entirely by raw material and work-in process, as we wrap utilization to better meet the strong customer demand. Days of inventory were relatively unchanged at 118. Weeks of channel inventory finished lower sequentially once again. And due to the strong sell-through at our distys, we anticipate remaining below our seven to eight-week target through the end of the year. CapEx for the quarter was 59 million, bringing our year-to-date total to 127 million or more than double compared to the second half of 2020. We expect to continue to increase capital investment and for CapEx to trend above our long-term model of 4% this year. Turning to cash flow, we generated 2.2 billion over the trailing 12 months, which equates to a record 36% free cash flow margin. And over the same period, we returned approximately 75% of free cash flow after debt repayments via dividends and repos. This is below our long-term target as we paused our buyback program, given the pandemic uncertainty and the pending Maxim deal. We ended the second quarter with 1.3 billion of cash and equivalents on our balance sheet and our net leverage is now 1.3 on a trailing 12. We’re comfortable with the leverage and do not plan to reduce debt. As such, we remain committed to return 100% of free cash flow to shareholders. So let me finish up with our third quarter outlook. Revenue is expected to be 1.7 billion plus or minus 70 million, up sequentially as additional capacity comes online. This is in line with seasonality after a very strong Q2. At the midpoint, we expect each of our B2B markets to increase slightly sequentially, and consumer to be up low double digits. Based on the midpoint of guide, op margin is expected to be 42.5 plus or minus 100 bps. And our tax rate is expected to fall between 11% and 13%. Based on these inputs, adjusted EPS is expected to be $1.61 plus or minus $0.11. So in summary, ADI delivered a very strong quarter highlighted by record revenue, earnings and free cash flow conversion. Importantly, bookings and backlog remain very strong and we're continuing to invest to increase production for the balance of the year, giving us great confidence that our second half will be stronger than our first. We've also made meaningful progress towards closing the Maxim acquisition. Shortly after the deal closes, we are going to hold a conference call to provide an update regarding our capital return plans. As a reminder, once combined, we anticipate having more than $3 billion of cash and a leverage ratio well below 1. Let me now pass it back to Mike for the Q&A. Mike Lucarelli: Thanks, Prashanth. Let's go to the Q&A session. We ask that you limit yourself to one question in order to allow for additional participants on the call this morning. If you have a follow-up question, please requeue and we'll take questions if time allows. With that, Cheryl, can we have our first question please? Operator: Thank you. [Operator Instructions]. Our first question comes from John Pitzer from Credit Suisse. Please go ahead. Your line is open. John Pitzer: Yes. Good morning, guys. Congratulations on the solid results. Vince, Prashanth, 90 days ago when you sort of guided for the April quarter, the key gating factor was your ability to grow supply. I'm curious, as you look at the July quarter, are you still in a supply constrained environment? And I guess more importantly, given the internal CapEx you’re spending and your work with your foundry partners, how do we think about your ability to grow supply beyond sort of the July quarter guidance? Vince Roche: Yes. So, John, thanks for the question. Yes, we are constrained. We've got a very, very positive book to build. But what we have forecast for the July quarter factors in all the elements of supply across silicon supply, both internally, externally as well as all the backend operations, assembly and test. So we feel very confident in that number. But beyond that, there is opportunity to ship more. There is more demand out there. But at least in the July quarter, we feel very comfortable with what we have forecast. John Pitzer: And how do we think about supply growth beyond July? Is July a good proxy to what you should be able to do sequentially for the next couple of quarters, or are you getting a particularly strong uplift in July and things moderate going forward? Vince Roche: Well, I think -- ultimately, everything will depend on demand. We're increasing our capacity. We're getting more wafer supply in general. And we are, as Prashanth said in his remarks, we've been investing in capital equipment inside the company to expand our backend operations. So you'll see sequential improvements in ADI’s output over the coming months. So as Prashanth said, the second half of the year, given our confidence in supply, we will have a better second half than first half. John Pitzer: That’s helpful. Thanks. Mike Lucarelli: Thanks, John. Next question? Operator: Thank you. Our next question comes from Tore Svanberg from Stifel. Please go ahead. Your line is open. Tore Svanberg: Yes. Thank you and congratulations on the record results. Prashanth, you talked about just the inventory being sort of way below the seven to eight-week target. Could you tell us where exactly the numbers are right now? And also, do you expect to get back to seven to eight at some point or is this kind of like a new norm now where disty in the channel is going to be sort of running below at what it has historically? Prashanth Mahendra-Rajah: Yes. Thanks, Tore. Inventory is very lean. We entered the quarter below seven weeks and it decreased again in the quarter. So we would like to build inventory backup. It's unlikely that that's going to happen. Whatever they get their hands on sells through immediately. So until the supply gets improved over the coming quarters, I don't think you'll see us return to normal inventory levels in the channel. But I would say that we do maintain the view that sort of that seven to eight weeks is the right balance for us to have in the channel. Tore Svanberg: Great. Thank you. Prashanth Mahendra-Rajah: Thanks, Tore. Operator: Thank you. Our next question comes from Vivek Arya from Bank of America Securities. Please go ahead. Your line is open. Vivek Arya: Thanks for taking my question. Vince or Prashanth, I was hoping you could quantify lead times and book to build in various end markets to the extent possible, where are lead times stretched the most? And importantly, what are you doing to prevent double ordering? Are you implementing any firm price, non-cancelable programs like some of your peers are? Any perspective on how do we quantify the state of supply/demand imbalance and how do we get some assurance that this will be resolved I guess peacefully is one word that comes to mind, I think that will be very helpful? Thank you. Prashanth Mahendra-Rajah: Thank you, Vivek. Maybe just to start with some comments on where demand is coming from. So we're experiencing significant growth in demand and it's very broad based in all of our markets. And when you rewind and think how we got here, our customers entered the pandemic with pretty lean inventories. Then we had this synchronized government stimulus, both fiscal and monetary. We had very strong growth during the pandemic of consumer electronics with the high use of cloud compute connectivity. We're coming out of the pandemic now with GDP driving industrial, and that's driving companies to rethink both where they manufacture and upgrading the style by which they manufacture. So on the supply side, we've been planning for additional capacity, as Vince mentioned, since late summer of 2020. And as we add capacity, our revenue forecast is increasing. And that's really what helped us deliver a better Q2 guide up for Q3 and feel good about Q4. So I think supply will eventually match demand, but I don't see demand really going away. So this feels -- given the secular drivers behind it, it feels that this is going to be with us for a while. Book to build for the past quarter was above 1, and it was the same for all end markets. So it's, again, very broad based. And I think it's really just a reflection of the incredible role that ADI’s products play across the manufacturing ecosystem. Vivek Arya: And any pricing programs that you might have put in place like your peers? Prashanth Mahendra-Rajah: I guess a few comments to make there. We are efficiently managing our orders. We're working with our customers, both large and small, across all markets to understand the demand timing and to allocate the supply based on demand. Remember that while we report on a POA basis, we actually run the business on POS. So we look through distribution to understand what's happening at customer. We've also put in a non-cancelable, non-returnable for up to 90 days to help give us better visibility into the backlog and that helps customers sort of manage what they can expect to get from us. So at this point, I would say the focus really has been on communication. And that's the feedback I think Vince has heard from customers as well is that what's important to them is communicating what they're going to get and when they're going to get it, so they can plan their respective downstream production requirements. Vivek Arya: Thank you. Mike Lucarelli: Thanks, Vivek. We’ll go to the next question please. Operator: Our next question comes from Ambrish Srivastava from BMO. Please go ahead. Your line is open. Ambrish Srivastava: Hi. Thank you very much, Prashanth and Vince. I wanted to just unpack the gross margin comments that you made, Prashanth. You are at the model 70% plus and when you talk about gross margin incrementally getting better, what's the right way to think about it? You had referred to the cost savings that you'll be getting from factory consolidation. Is there an impact from pricing? And then kind of -- and related to that, how are you managing the input cost, which seem to be going up across the board versus pricing? And is that also playing a factor in the gross margin? And sorry, related to that is would you be building inventory as you go through the second half? Thank you. Prashanth Mahendra-Rajah: Thanks, Ambrish. Do you have a few more add-ons to that? So let's start with -- let's do a quick one on, on pricing. So net impact of pricing changes are immaterial to gross margin. So we're managing our cost increases to net those out from a price standpoint. The gross margin lift that you're seeing really is the productivity that we're driving. So I did say in the first quarter earnings call that that would be the bottom of gross margins for the year and we would expect sequential improvement. You're seeing that in the Q2 results printed. You see that in the guide that we've given for Q3. That is coming from the manufacturing consolidation of the linear factory closure, which we have talked about, and also some step-up in utilization. So that's kind of a tactical way to think about how gross margins with evolved over the balance of this year. Our model remains 70%. And I don't know, Vince, if you want to give some guide on how we think about gross margins long term? Vince Roche: Yes. Look, the root of our value creation really is innovation. We're spending over $1 billion a year. And we like to have the highest performing products out there that we got well paid for. And I think also the diversity of our product application and customer domains helps us protect margins, as we've seen through the pandemic here. So 85% -- we've got 125,000 customers and 85% of our sales comes from products that individually contribute less than 0.1% of our revenue, or even less. So that's the model of the company. So there's a lot of resilience -- a lot of optionality and resilience built into it. Mike Lucarelli: Thanks, Ambrish. Ambrish Srivastava: Thank you. Operator: Thank you. Our next question comes from Blayne Curtis from Barclays. Please go ahead. Your line is open. Blayne Curtis: Hi. Good afternoon. Thanks for taking my question. Good morning. Just kind of curious on the industrial segment. I think last quarter you talked about two of six segments being at peak. You talked about all being up in the April quarter. So just any color by segment there and if any more of them are at record revenue, that would be helpful? Thanks. Vince Roche: Yes. Well, we've seen -- this is a very, very highly diversified business. We saw broad growth across all the individual sectors. In fact, all applications grew double digits year- over-year and sequentially. And I believe there's a lot more upside to come, because we're in a multiyear growth cycle driven by secular trends, Industry 4.0, et cetera. I would say the -- we've seen really strong acceleration in the automation sector. And I think that's driven by such things as the need for onshoring, more flexibility and more robust and connected supply chains. If I just pick healthcare, it has already been a multiyear growth market for ADI. And the pandemic kind of underscored the importance of information technology in managing our healthcare systems. So we've seen an acceleration in our digital healthcare business, as we begin to migrate the hospital environment to the clinic and the home with point of care solutions or healthcare anywhere mentality. And as I mentioned in the prepared remarks as well, the energy sector with the move through renewables and this charging infrastructure that's being laid in to support these electric vehicles, those are some of the areas that we're seeing strongest growth within the industrial area. But I think automation underpins it. Also, I would say, I've been very pleased with the results that we're getting in the very broad bench, scientific and test equipment, analytics equipment, and so on. So it's been very, very broad. Prashanth Mahendra-Rajah: And Blayne, just to touch on your last point about the record applications. You're right. I think last quarter, two or three had records. We increased that. Four of our six applications are at record. So I think I echo what Vince said is that we're early stages of this cycle. And yes, at some point, we expect all of our applications to be at record probably next year or so. And with that, can we go to our next question please? Operator: Thank you. Our next question comes from Toshiya Hari from Goldman Sachs. Please go ahead. Your line is open. Toshiya Hari: Thank you for taking the question and congrats on the strong results. Vince, I had a multipart question on your BMS business. You guys talked about revenue more than doubling in the quarter. I was hoping you could speak to kind of the breadth of your customer profile there on the quarter on a year-over-year basis. And I guess more importantly, based on some of the comments that you've made on past calls and also this call as it relates to your design win pipeline, should we expect some of these wireless BMS projects to ramp in fiscal '22 or is it more fiscal '23 and beyond? And lastly, as it pertains to the combination with Maxim, how should we think about how your position in BMS evolves over time post the combination? Thank you. Vince Roche: Yes. Thanks, Toshi. Well, first off, we're the market share leader in the electric vehicle battery management systems. And as you know, we have really two portfolios. We have the existing, we like to call it the wired portfolio, the more traditional way of moving data from the battery system and we've introduced a wireless version, a robust cognitive radio-based wireless system. So I think the next 12 months will be driven by the traditional wired battery technology. And after that in late '22 into 2023, we’ll begin to see the upsurge of the wireless battery technology that will complement the wired. So what I believe will happen is, today, what have we got? 2 million, 3 million cars per year being produced -- electric vehicles being produced. That's going to move to we believe somewhere 10x at least over the next seven, eight years. So this is a multiyear cycle. Where our BMS chips today are being used in over half of the top 10 selling EV cars globally, and we're getting share in each of those areas. Today, our best position is in North America and China. And as I mentioned in the prepared remarks, we're beginning to make real tracks in Europe as well as Japan and Korea. So, ultimately, if a manufacturer wants the most miles per charge, they're going to turn to ADI. So that's what we're working on. Mike Lucarelli: Thanks, Toshiya. We’ll go to our next question please. Cheryl, we'll take our next question. Cheryl? Vince Roche: Cheryl, can you hear us? Operator: Please go ahead Ross Seymore from Deutsche Bank, your line is open. Ross Seymore: Hi, guys. Can you hear me? Vince Roche: Yes, we can, Ross. Ross Seymore: Okay, great. Glad Cheryl came back. Just had a couple of questions on your communications business. I guess in the tactical sense, it looked like it was better than you expected in the quarter, the April quarter. Was that specific to the wired or wireless side, or was it just the supply coming on? And then more importantly, looking forward, can you give a little bit more color on what your expectations are for the wireless side? Obviously, we had some difficult comps with what happened with Huawei year-over-year, but how do we think about that returning to year-over-year growth, given the second half commentary that you talked about with some ramps in North America and beyond? Prashanth Mahendra-Rajah: Yes. Thanks. So I said in the prepared remarks that the communications business for the second quarter was really driven by very strong growth in the wired. I think it was up double digits. Wireless remains lumpy. But we feel pretty good that comms has bottomed in the second quarter and we're going to see growth in the second half, and I'll let Vince jump in with some of the customer conversations he's been having. But with the completion of the C-band auction, we feel very good that you're now going to see the build out of 5G for which we are the largest participant certainly with the transceiver product for both the U.S. and starting to see that in Europe as well. Vince Roche: Yes. So Ross, what I want to mention is that at this point in time the rest of world is 3x larger than China for ADI. I think that's very, very important to remember. And we're certainly seeing 5G momentum pick up on a global basis. North America, we've recently -- obviously, the C-band auction is complete. And we're beginning to see orders today that we expect will accelerate during 2022 and beyond. Even Europe, where there's been real lethargy in upgrading their communication systems in general over the last several years, we're beginning to see signs of life in the deployment of 5G. India is also -- India has a significant government funded program to make 5G a reality there. We’re beginning to participate in trials. And last but not least is O-RAN. We already have revenue as a company with Rakuten, the online shopping company in Japan and we're very well positioned given our ecosystem position there to unlock potential in what is a brand new stream of revenue, particularly I think as it gets deployed into private networks for machines. Ross Seymore: Great. Prashanth, just one quick clarification. Double digits in the wired, was that a year-over-year or a sequential comment? Thank you. Prashanth Mahendra-Rajah: That was a year-over-year. Ross Seymore: Thank you. Mike Lucarelli: Thanks, Ross. Operator: Thank you. Our next question comes from Stacy Rasgon from Bernstein Research. Please go ahead. Your line is open. Stacy Rasgon: Hi, guys. Thanks for taking my question. I actually wanted to follow up on that comm question. So if I go back to last quarter, you'd kind of talked the comm trajectory down a bit and it was a China statement. So I just want to clarify. Is that -- it doesn't sound like that's changed. It does sound like the uptick you're seeing right now is outside of China, U.S., Europe, India. I guess is that correct? I guess why didn't you see that uptick 90 days ago -- expectations for that uptick 90 days ago versus today? And then what are your broad thoughts on 5G rollout in China going forward from here? How does the rest of that play out given all the dynamics that are happening there? Vince Roche: Yes. So I think first and foremost, China's opportunistic for ADI at this point. We will sell I think lots of components, and therefore it is more opportunistic. Prashanth, you can talk about the specifics. Prashanth Mahendra-Rajah: Yes. I think, Stacy, we have always said that we expected 5G deployments in North America to come next and be followed by Europe. When we gave you the commentary for the -- leaning into the second quarter, we were focused on the pause in China. But we have seen now that the auctions are complete, and particularly Verizon being much more public about what they intend to do in the 5G space, as Vince mentioned, orders are starting to come in for that. So the trajectory for communications or for wireless specifically is going to be up in the second half. Mike Lucarelli: Thanks, Stacy. Stacy Rasgon: Thank you. Mike Lucarelli: Can we go to our last question please? Operator: Thank you. And our last question comes from William Stein from Truist Securities. Please go ahead. Your line is open. William Stein: Great. Thanks so much for squeezing me in. Guys, I'd like to ask about the cost function. We have two potential looming problems. I think one is inflation broadly, not just materials, potentially labor as well. And then on the OpEx side, the return to work face-to-face sort of operations suggest maybe we start spending on travel and things like that. And I wonder if you can comment as to how we might sensitize our models to these factors? Thank you. Prashanth Mahendra-Rajah: So let me take the inflation piece first. So I think it was Ambrish who asked a question and we are seeing cost increases from our supply base, but we feel that we're guiding margins on a net basis are going to be neutral for that, because we are where we can pushing that price through. So I'm not as concerned about the inflation side. We have been very mindful of the labor side. And I would say that the data we're seeing is that it's taking us about a week longer than normal to fill jobs at the factory level. So our U.S. factories are facing a little bit longer time to fill jobs, but it's not anywhere as dramatic as what we're hearing in the media in terms of filling these high paying manufacturing jobs. And then for return to office, that is something we spend a lot of time on. There is no doubt that there will be some return to travel. I think that's going to be universal across all companies. But more specifically to how ADI is thinking about return to office, maybe I'll let Vince talk about how we're thinking about that. Vince Roche: Yes. So we've instituted a three-day per week policy to start with here at ADI for those who have been working remotely, and we will see where things go from there. But my sense is on the OpEx side of things, we will probably not get back to per capita travel spend, entertainment spend and so on and so forth. The other thing I'll remind you, Will, is that we work relentlessly at the company on taking costs out of the business. So we work hard on cost of goods, we work hard on making the business efficient below the cost of goods line as well. So inflation is nothing new. We'll see how it moves over the next -- if we see an acceleration in inflation, then we'll figure out what actions to take. William Stein: So we shouldn't be modeling some step-up cost function in OpEx related to travel and such activities? I know there's some increase you've already guided to for I think bonuses and such, but for travel no? Vince Roche: Well, I think that's true. And when you look at the expenses today, our OpEx is laden with some very rich bonus payouts, because the business in terms of growth and profitability is doing very, very well. But we will -- over time, I expect that the growth will moderate and the bonuses will also moderate. Prashanth Mahendra-Rajah: Will, maybe I can wrap up by saying we're expecting second half revenue to be strong. We indicated that second half gross margins are going to continue to increase, which is going to give you incredible leverage and therefore there is no reason you won't see a meaningful lift in op margins as each quarter rolls out. And all of that is going to translate into more cash flow, which we'll have available to deploy since we're not doing any further debt reduction, that's coming back to shareholders. William Stein: Great. Thanks so much. Mike Lucarelli: Thanks, Will, and thanks everyone for joining us this morning. A copy of the transcript will be available on our Web site. Our reconciliations will also be there. You can also find our new CSR report that Vince outlined in his script on our Analog Investor Relations homepage. And with that, thanks for joining us and your continued support of ADI. Operator: This concludes today's Analog Devices conference call. You may now disconnect.

Operator: Good morning, and welcome to the Analog Devices First Quarter Fiscal Year 2021 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. Mike Lucarelli, Senior Director of Investor Relations. Sir, the floor is yours. Mike Lucarelli: Thank you, Cheryl, and good morning, everybody. Thanks for joining our first quarter fiscal 2021 conference call. With me on the call today are ADI's CEO, Vincent Roche and ADI's CFO, Prashanth Mahendra-Rajah. For anyone who missed the release, you can find it and relating financial schedules at investor.analog.com. Now onto the disclosures. The information we're about to discuss includes forward-looking statements, including statements relating to our objectives, outlook and the proposed Maxim transaction. These forward-looking statements are subject to certain risks and uncertainties, as further described in our earnings release and our most recent 10-Q and other periodic reports and materials filed with the SEC. Actual results could differ materially from these forward-looking statements as these statements reflect our expectations only as of the date of this call. We undertake no obligation to update these statements, except as required by law. Our comments today will also include non-GAAP financial measures, which exclude special items. When comparing our results to our historical performance, special items are also excluded from prior periods. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures and additional information about our non-GAAP measures are included in today's earnings release. And with that, I'll turn it over to ADI's CEO, Vincent Roche. Vince? Vince Roche: Thanks very much Mike, and good morning to you all. So I'll start my remarks with a review of our results before providing insights into how we're shaping a more connected, safer and sustainable future. The first quarter we delivered strong results that came in at high end of our outlook. Revenue was $1.56 billion and increased 20% year-over-year. The strength was broad based, the growth across all end markets highlighted by a record quarter for our industrial business. We delivered gross margin of 70% and op margin of nearly 41%. All told, we produced adjusted earnings per share of $1.44. Over the trailing 12 months, we generated $1.9 billion free cash flow equating to 33% free cash flow margin placing us in the top 10% of S&P 500. So overall I'm very pleased with our team's performance this quarter. Now I'd like to discuss how we're advancing our mission of engineering good for the planet, social health and economic prosperity which in turn will create long-term sustainable value for our shareholders. Awareness of the world's environmental degradation and climate change specifically is growing tremendously with a global called action building momentum. Semiconductors, as the bedrock of the modern digital economy have a major role to play in improving our standard of living while protecting our planetary health. At ADI, our technology sit at the intersection of our customers and societies most pressing challenges and we're uniquely positioned to drive positive impact. Our industry leading portfolio with its breadth of capabilities defines the edge of performance and inherently delivers sustainable benefit. With each generation of chip designed, we increase efficiency while enhancing the performance of our customers systems. This portfolio supports customers of all sizes and spans industries that are aligned with key secular trends. So today, I'll focus on where ADI is entering goods across the automation, electrification and connectivity sectors. Firstly, the automation of human routines, factory floors and supply chains is critical to our future and the pandemic has further accelerated this paradigm. The World Economic Forum is predicting that by 2025 over half of all tasks will be performed by machines at first in human history. To support this trend, our industrial customer base is boosting deployments of robots and cobots. Over the next five years the global robot installed base is expected to increase by about 60%. With industrial motors currently consuming 25% of all the world's electricity. We urgently need to deploy technologies that not only deliver speed and accuracy, safety and flexibility. But also energy savings. Now let me share a few examples of how our technologies are meeting these challenges in automation. So firstly, variable speed drives can reduce motor energy consumption by up to 40% in a robot. Our precision signal chain isolation and power management technologies together increase response time and improve power conversion. Secondly, our time of flight sensing technology allows robots to sense and interpret the world around them. So our customers can deploy more robots per square foot and improve workers safety. Thirdly, our OtoSense condition-based monitoring solution presciently identifies motor inefficiencies enabling customers to proactively optimize and repair machinery. This avoids costly downtime and lowers energy consumption by 10%. Importantly, these technologies that improve motor efficiency and robotic control can save almost one gigaton of annual CO2 emissions, the equivalent of 330 million residential homes. In total, automation is a key component of our industrial business supporting tens of thousands of customers. We expect this accelerated digitalization to drive continued growth in 2021 and beyond. Now I'll turn to electrification and discuss the important role ADI is playing as consumer demand for greener transportation accelerates. The World Economic Forum predicts that by 2030 there will be approximately 215 million electric vehicles on the road up exponentially from about 7 million today. ADI's solutions are embedded across all phases of the electric vehicle journey from supporting EV infrastructure to forming and managing the vehicle battery. So I'll share now how our technologies are impacting this ecosystem. First, the shift to renewable energy sources drives great environmental benefits. But also creates new obstacles in distribution, transmission and stability. This requires a smart grid which can vividly monitor and adjust performance. Our control and sensing technologies are critical to ensuring the grid parameters remain stable and prevent shutdowns. This shift also requires energy storage systems to mitigate intermittency issues, related to variable user demand. Here our high accuracy monitoring and efficient power conversion technologies help extend systems battery life by more than 30%. Turning to the battery which is the most expensive vehicle part. Our Battery Management System or BMS enables up to 20% more miles per charge than our competition. As the market leader, over half of the top 10 electric vehicle brands use ADI's BMS technology today. In addition, last fall we introduced the industry's first wireless BMS platform. This is all the benefits of our wired solution by lowering vehicle weights and enabling the scalable battery architecture, paving the way for reuse and storage systems. GM's Ultium platform uses our wireless BMS technology which is expected to be deployed across 30 different models by 2025. Interest in our wireless BMS technology is rising and last quarter, we recorded our second OEM design win. Importantly, the environmental impact from our BMS capabilities is notable. In 2020 alone, vehicles equipped with ADI's BMS technologies prevented approximately 70 million tons of carbon dioxide when entering the atmosphere. Our solutions utilized at the battery formation stage enabled more current density thereby shrinking our customer's equipment footprint by up to four times and reducing per channel costs by nearly half. Our technology makes it possible for factories to recycle more than 80% of the energy used during the formation back into the power grid. Based on today's production levels, energy recycling during formation reduces CO2 output by about 1 million tons annually. So all told, electrification not only represents highly valuable market with long-term revenue growth opportunities. But one that will be critical to the preservation of our precious natural ecosystem. So finally, let me turn to connectivity. In the face of the pandemic, connectivity has been the foundation that is sustaining and powering our society and the economy and while the communications market is not known historically for its sustainability benefits. This ability to stay connected and productive from anywhere has also had a positive impact on the environment, a clear proof point is the reduction of global carbon emissions by a record 7% in 2020. By 2030, forecast suggest mobile traffic will increase by about 17-fold. This exponential increase in wireless data combined with pervasive cloud computing puts IP traffic on pace to double every two and a half years. And ADI is playing a critical role in building out the next generation infrastructure to support this exponential increase in data. From capturing the signal at the base station air interface to transferring the information to the data center while substantially decreasing power. So ADI has invested ahead and reshaped the 5G radio architecture, our software defined transceivers with complementary precision signal chain and power technologies are vital to enabling the 5G massive manual architecture. When comparing 5G to 4G, our solutions help deliver a 90% decrease in energy per bit at the air interface by decreasing the channel count by 10x while maintaining the radio size and terminal performance. With the exponential upswing in data generation. Our customers are upgrading their optical infrastructure from 100 to 400 gigabits per second. Our precision signal chain technologies help enable these optical modules maintain constant power while operating at four times the data rate. And with the customers looking to increase to 1 terabit and beyond ADI's opportunity will continue to expand. Capturing and transporting data efficiently is important. But computing in data centers is the primary source of energy consumption in the connectivity ecosystem. Currently, data centers generate more than 130 million tons of CO2 per year globally. So this is where the transition from 12 to 48 volt power distribution can reduce power loss and increase compute density. Our 48 volt to core micromodules power and power system monitoring solutions are enabling this transition and according to Alphabet, this approach and approved data center energy efficiency by 30%. All told, ADI is part of the ecosystem enabling greater efficiency and wireless and wired data capture transmission and of course computing and our solutions of customers to scale their investments and build next generation networks economically and resourcefully. So stepping back, I'm incredibly proud of the progress we've made on our mission to engineer good but a lot remains yet to be done. We're focused on partnering with our customers to develop increasingly innovative technologies that create successful business outcomes in rich people's lives and leave a greater impact on our world. And so with that, I'll hand it over to Prashanth. Prashanth Mahendra-Rajah: Thank you, Vince. Let me add my welcome to our first quarter earnings call. My comments today with the exception of revenue and non-op expenses will be on an adjusted basis which exclude special items outlined in today's press release. ADI delivered strong first quarter with results at the high end of our outlook. Revenue increased 20% nearing an all-time high, operating margin expanded to 40.7% in line with our long-term model and adjusted EPS grew 40%. We saw tremendous breadth this quarter with all market segments growing year-over-year. The first time in over three years. And B2B revenue increased 2% sequentially and 22% year-over-year with double-digit growth across each end market. Industrial represented 55% of revenue during the quarter increased 5% sequentially and 24% year-over-year. This represented a record quarter for industrial with broad based strength across applications, customers and geographies. Specifically demand across our automation instrumentation and energy businesses accelerated this quarter. Communications which represented 18% of revenue during the quarter decreased 10% sequentially but increased 16% year-over-year. Both wireless and wireline revenue grew double-digit despite zero revenue from Huawei this quarter. Automotive which represented 16% of revenue increased 7% sequentially and 19% year-over-year. With the industry aggressively ramping up production we saw double-digit year-over-year across all applications. BMS exhibited the highest growth, a trend we expect to continue given our growing design pipeline. And lastly, consumer which represented 11% of revenue increased 2% sequentially and 5% year-over-year. We saw strong growth in hearables, wearables and home entertainment. This quarter's inflection puts us on track to return to full year growth in 2021. And now for the rest of the P&L, gross margin which is seasonally weaker in the first quarter finished flat sequentially at 78%. We anticipate our first quarter's gross margin will be the trough for the year as we benefit from a strong top line, improving utilization and capturing the majority of the LTC cost savings. OpEx in the quarter was $456 million up sequentially and year-over-year due mainly to variable compensation. Op margins finished at 40.7% above the guided midpoint. Non-op expenses were $27 million and better than our outlook due to an investment gain. Our tax rate for the quarter was approximately 12%. So all told, adjusted EPS came in above the high end of guidance at $1.44. This included a $0.04 benefit from an investment gain that was not in our prior outlook. Moving onto balance sheet and cash flow, inventory dollars increased modestly while inventory days finished at 119, down from 121 in the fourth quarter. Channel inventory as measured in weeks was flat sequentially and remained well below our seven-to-eight-week target. CapEx in the quarter increased to $67 million or roughly 4% of sales. We're working judiciously to add CapEx to meet this record demand anticipate that CapEx will run slightly above our long-term target of 4% for fiscal 2021. Turning to cash flow, over the trailing 12 months we generated $1.9 billion or 33% of revenue. You'll recall that during the last year, we paused our share repurchase program for few quarters due to the pandemic and our proposed Maxim acquisition. Therefore in 2020, we returned 80% of free cash flow to shareholders after debt repayments. This quarter, we've reinstated our share repurchase program and given our current 1.5 leverage ratio we're committed to returning 100% of free cash flow for the year. Looking at the first quarter, we executed nearly $160 million of repo and we also announced an 11% increase to our quarterly dividend at $0.69 per share. Which marks our 18th increase over the last 17 years? Before moving onto guidance, I want to provide some context on the current state of supply. A sharper than expected recovery in the economy coupled with a lean inventory backdrop is fueling unprecedented demand for semiconductors and putting stress on the global supply chain. While the industry at large is aggressively working to meet this historic demand. It's more than likely we'll be operating in a constrained supply environment for the balance of the year. At ADI, we're confident in our ability to outperform in times like this. Our flexible hybrid manufacturing model, healthy balance sheet inventory and diversified product and customer base position us well. In addition, we're working to secure additional capacity from our external partners and ramping our internal operations to increase output. Now let me provide our second quarter outlook. Revenue is expected to be $1.6 billion plus or minus $50 million. At the midpoint, this guidance reflects would be record revenue. We expect double-digit year-over-year growth for automotive, industrial and consumer market but we do see a decline in our comms. Based on the midpoint of guidance, op margin is expected to be 41% plus or minus 70 bps and our tax rate is expected to be between 11% and 13%. Based on these inputs, adjusted EPS will be $1.44 plus or minus $0.08. So in summary I'm encouraged by the near-term trend we're seeing across our end markets and while we're mindful of the ongoing macroeconomic uncertainty. We're optimistic that a broad-based recovery is underway and with Maxim expected to close this summer. 2021 will be a transformative year for ADI. Let me now pass it back to Mike to start our Q&A. Mike Lucarelli: Thanks Prashanth. Let's go to the Q&A session. We ask that limit yourself to one question in order to allow for additional participants on the call this morning. If you have a follow-up question please requeue and we'll take your question, if time allows. With that, Cheryl can we have our first question please. Operator: [Operator Instructions] our first question comes from John Pitzer from Credit Suisse. Please go ahead. Your line is open. John Pitzer: Good morning, guys. Appreciate the question and congratulations on the strong results. Prashanth, I just want to talk a little bit about how the model unfolds from here. I mean clearly you talked about already hitting the gross margin trough for the year. But you're guiding EPS sort of flattish on op revenue. I'm just kind of curious how should we be thinking about OpEx from current run rate levels and specifically, is there incremental OpEx needed because of the tight supply situation? What are the puts and takes as we go throughout the balance of the year? Prashanth Mahendra-Rajah: Thank you for the question, John. Way to think about OpEx is that, if you recall in the Proxy, we identified that last year in the first half we had a particularly low bonus payout as reflection of the macroeconomic environment. In the first half of this year you're going to see the opposite effect of that. So on average it's a normal bonus payout. But you do see a significant upswing in a variable comp for which is impacting both the first and the second quarter compares. In addition, we have the merit increase if you remember we put that merit increase in several months later than normal as a result of the pandemic last year. So you're beginning to see that on a full year run rate basis in first quarter and then it will carry in second quarter. So beyond these comp related items OpEx is really at a steady level. We're not requiring any additional investment at the OpEx level to support the demand that we're generating. John Pitzer: Perfect. Thank you, guys. Mike Lucarelli: Thanks. We'll have our next question. Operator: Thank you. Our next question comes from Ambrish Srivastava from BMO Capital Markets. Please go ahead. Your line is open. Ambrish Srivastava: Prashanth and Vince, I just wanted to get back to the current constrained supply condition that the industry is facing. So could you please comment on your lead times and then what are you seeing in the cost increases as you're experiencing and are you able to pass along pricing through the customers and more importantly, does it change your approach? Is there a structural change that you see happening? Prashanth, you talked about CapEx running a little bit higher. Where does that additional CapEx going? Is back end, front end? And I just wanted to get a better sense of how things change from here on the supply chain front for ADI? Thank you. Prashanth Mahendra-Rajah: Okay, so there's a lot packed into that question, Ambrish. Let me take a couple pieces of it. So we're producing and shipping at record levels and second quarter outlook is going to be a record. We have enough capacity to meet to the guide. But significant additional upside versus that guide will depend on what we're able to procure both from an external wafer standpoint as well as the capital that we're in the process of deploying into our internal facilities to support that. What we're doing to help alleviate that situation is we have been consistently building inventory since last summer to deplete what was pulled down during the pandemic shutdowns. We're adding additional supply both internally and I mentioned the capital that we're deploying which is mostly going to the back end and then externally we've gone out and acquired additional wafers from our partners. I think the answer to your question on CapEx is that is mostly for test and then, on the capacity side. Where we can get additional capacity from our partners, we're doing that. But even with this additional capacity it's very likely that the strength of demand is going to outpace supply for some period of time. So I think we will be chasing demand at least for the balance of this year. From a capital deployment standpoint, some of that as we guide as percentage of revenue some of that is dependent on how strong the year continues to rollout. So when I say slightly above 4%. It could come down to 4% or maybe just a hair below if revenue continues to cripple on here. Vince Roche: Yes, just on the lead time question, Ambrish. So we entered our first quarter with what we've recalled normal lead times. But during the quarter and into the early part of this quarter we've seen lead times extend which I think is pretty consistent with the industry at large. So while we see some hot spots. We're really talking about is few weeks of extension in different places. Let me remind you too that, we run this company. We run our manufacturing plants; the operating plants are run to POS rather than POA. So what we're seeing right now is a good balance between POS and POA. But as Prashanth said, we're preparing for quite a bit of upside during this year and we've pretty substantially increased the CapEx in our backend. Mike Lucarelli: Thanks Ambrish. Go to next question, please. Operator: Our next question comes from Stacy Rasgon from Bernstein Research. Please go ahead. Your line is open. Stacy Rasgon: I wanted to ask about comm. So it's down sequentially and year-over-year I guess into Q2. Is that the trough for the year for comm.? And do you think the comms segment overall can grow year-over-year for the full year 2021? Prashanth Mahendra-Rajah: You want to take that, Vince? Okay, I'll take the first part of that, Stacy. So let's break comms into wired and wireless. On the wired, we're looking for continued growth as carriers and data centers are upgrading networks. On the wireless, we said that, that the US deployment of 5G was always going to be a second half event and our view on that has not changed. What we have seen is a bit more of a slowdown in China as they're digesting kind of the 5G that they deployed and the channel counts are a bit lower. So we do think comms troughs in second quarter and then begins to pick up in the second half with the global 5G. In terms of our view on whether we can grow comms on a year-over-year basis. Given the significant headwind we have from Huawei going to zero, that's a tough ask. Vince Roche: Yes, I think as well, I'll remind everybody that the three-year CAGR for comms has been 7% and that's with that's very, very significant headwind in China. I think when you look at ADI in the comms business it's tremendously diverse. Many, many hundreds of customers. 5G is a critical part. Wireline is an increasingly critical part. So very, very hard to predict in a lumpy business. But our expectation is that, when you have CAGR [indiscernible] we produce better than mid single-digit growth for that business. Stacy Rasgon: I'm sorry, was that a long-term statement? That didn't sound like that was this year. Vince Roche: Over the next few years I think Stacy. We will produce something better than mid single-digit growth in that business. Mike Lucarelli: Yes, Stacy what Prashanth says we don't think it will grow this year in fiscal 2021 due to, I will say the Huawei headwinds, as they go to zero and lower channel count in China. But then pivoting to Vince, over the long-term we should grow - we've been growing 7%. There's no reason to go - going forward we can't grow at least in line to that. Stacy Rasgon: Didn't you used to talk about double-digit growth in this business? Mike Lucarelli: We did Stacy. I think the world has changed over the past two years quite a bit. Could it grow double-digit? Sure it could. There's no reason it can't. But I think as we look today with the pressures, you're seeing geopolitically those are things we didn't know two years ago. Vince Roche: I think high single digits is a reasonable expectation. The early stages of 5G, I think being able to grow at double digits pretty plausible but we're working off a bigger numerator at this point in time. So I think if we can produce something in the high single digits. We'll be in very, very good shape. Stacy Rasgon: Got it. Thank you, guys. Mike Lucarelli: Thanks Stacy. Cheryl, next question. Operator: Our next question comes from Tore Svanberg from Stifel. Please go ahead. Your line is open. Tore Svanberg: Vince, you talked about second design win for your wireless BMS solution or second OEM using that technology. Could you elaborate a little bit on how quickly this technology is going to penetrate the auto market? Could you potentially get to six, seven OEMs embracing this technology this year and or next? Vince Roche: Well that's certainly our expectation. I think in terms of getting to market. The latter part of this year we'll see the start of production. And I think between now and the end of 2023 say, we should expect four to five OEMs to adopt that technology. With a strong pipeline, but also remember we have a very strong wired portfolio in BMS. So we've got those two tailwinds working for us. But I think overtime it will be kind of hybrid between wired and wireless. But clearly wireless is the bright star at this point in time and our expectation is, that we'll have at least a handful of OEMs using this technology by start of 2024. Tore Svanberg: Very helpful. Thank you. Mike Lucarelli: Thanks Tore. Operator: And our next question comes from Vivek Arya from Bank of America. Please go ahead. Your line is open. Vivek Arya: Vince, I wanted to talk about just fiscal 2021 and the sustainability of growth. So you're starting the year of very strong, right? 20% growth rates in Q1 and the Q2 outlook. How should we think about the second half of other - do you want to talk about the fiscal year or the calendar year? Which markets do you think right now are over heated because of whatever reasons which are kind of only - which are in line with demand and which ones can actually accelerate going into the second half? Just how should we think about how the segment mix changes as you go towards the second half of the year? Thank you. Vince Roche: Thanks for your question. Typically 1Q is the low point for ADI. We had a reasonably strong first Q compared to kind of normal pattern. But I want to stress there's still a tremendous amount of uncertainty out there. And I don't want to get into the business of making strong speculative predictions here. But we can only kind of guide one quarter at a time particularly in this varying market. But if I look at the markets and just kind of peel the story back a little bit for you. So our industrial business which represents about half of the company's revenue was down we had two consecutive down years in 2019 and 2020. But we produced the record quarter in the first. We expect ongoing strength in that business and one thing I'm very, very pleased about is that the most diverse part of our industrial business is automation and I think given the strength of our opportunity pipeline, the new products we've got coming to market. I expect to see a multi-year tailwind in the automation part. I think right now in automotive there's a big push to electric vehicles and I see that as I said in the prepared remarks that is expected to grow by 2030 from kind of 7 million deployed electric vehicles today to over 200 million by 2030. And we talked a lot last quarter about the strength of our cabin electronics business, active noise cancelation, premium audio, our A2B bus deployments and all that through provides good tailwinds for the company going ahead. Comms as we've just narrated weak in the first half of 2021. But really, I think that's about the timing of deployments and my expectation is that, that business would snuck back in the second half of 2021 and continue into 2022. Last but not least, our consumer business has shown our couple of sequential growth quarters and we no longer have the overhang of one big socket and one big customer. So with the diversity of our business. We were addressing more applications, we've a stronger product portfolio than we've had say three years ago. I think we're on a growth track of that business and we're certainly off to a very, very good start. So we believe that 2020 was bottom of that business and certainly the signals are that is the case. Vivek Arya: Thank you. Mike Lucarelli: Thanks Vivek. Operator: Thank you. Our next question comes from Toshiya Hari from Goldman Sachs. Please go ahead. Your line is open. Toshiya Hari: Vince, you guys talked about growing capacity both internally as well as externally with your foundry partners. How should we think about the step up in your capacity, again both internal and external, over the next couple of quarters? The magnitude at which you can grow capacity for the overall business? And secondly, a couple of your peers have talked about signing long-term contracts with customers. Is that something that ADI is thinking about or considering? Thank you. Vince Roche: Well, I think what you've got to remember is that first and foremost we're producing and shipping products at record levels. 2Q will be an all-time record for the company, so we're certainly keeping ahead. Our investments are keeping ahead of these revenue levels, obviously. Like most of our peers in the industry, there are supply constraints in parts of the business, so we're not able to meet all of the demand, particularly in auto, which has been very, very well-publicized. And the constraints continue across the front end in wafer procurement and also the backend. But I want to remind you, too, we produce about half our silicon inside ADI, and the other half we procure with external partners. So I think something else worth noting is that we've been building inventory since last summer in terms of die stock and finished goods, which was heavily depleted during the pandemic shutdown. So, as I said, internally we're ramping up our own manufacturing operations and we've been successful in acquiring additional wafers from our external partners. So I think that's the best I can give you in terms of the atmosphere that we're working within. We're certainly keeping CapEx deployments ahead of where we think the revenue could be this year based on the demand patterns we now see. Prashanth Mahendra-Rajah: Toshi, I would expect that our guide for each of the subsequent quarters is going to be partly influenced by what we're able to supply. So as I said earlier, I think we're going to be chasing demand for the rest of this fiscal year, and we will use our guidance range to inform how we think - what we can build to base on our ability to get capacity third parties as well as increase capacity internally. Toshiya Hari: And then the long-term contracts, is that something that comes up in conversations or not really? Vince Roche: I think it depends. We do have long-term contracts, but we're doing that on a more strategic basis than tactical, let's say. Toshiya Hari: Got it. Thank you so much. Mike Lucarelli: Thanks, Toshiya. Operator: Our next question comes from Craig Hettenbach from Morgan Stanley. Please go ahead. Your line is open. Craig Hettenbach: Any update on just the linear cross selling synergies and efforts? I know a little while back you talked about the pipeline, but just how you're seeing that kind of unfold? And any particular markets for product segments that you're seeing the most traction along those lines? Vince Roche: Yes, so, Craig, there's a couple of ways to look at this. Obviously, the battery side of things is very, very strong. We've more than doubled the size of that since we acquired LT. And overall, when I look at, for example, power, the mixed signal portfolio, as well as the battery management side of things, we have more than $500 million worth of new revenue going into production this year, and that's just the beginning. So in terms of areas where we're winning, we've got notable wins in communications, in wireless as well as and data center and cloud. In Automotive, we're strongly attaching to our infotainment business, the autonomous radar systems. And the strongest surge in terms of growth in industrial for the LT portfolio, the additional cross selling is instrumentation tests and micromodules generally speaking across the board. We're seeing very, very strong demand for those products. So I think all that said, we had expected that we would double the LTC growth from 3% to 4% historically to high single digits in a five-year period. And that's quite similar to how we viewed our opportunity with Hittite at the beginning and what also has materialized. So that's the story in terms of the markets and the expected growth. Craig Hettenbach: Got it. Appreciate the color. Thanks, Vince. Mike Lucarelli: Cheryl, can we have our last question, please? Operator: Thank you. Our next question comes from C. J. Muse from Evercore. Please go ahead. Your line is open. C. J. Muse: I guess, Vince, to follow-up on that last question and to kind of go back to what you talked about a quarter ago. I think you said factory automation turned positive for the first time in quite a while year-on-year yet was still significantly below the Q3, 2018 levels. So I was hoping we could level set where we are today in your industrial bucket. And as you think about where you are relative to prior peak, what kind of acceleration in growth should we be able to see in 2021 and 2022 particularly around factory automation, A&D and instrumentation? Vince Roche: I'd say I mean, just Mike can give you some numerical color. I'll just give you a couple headline here. So what we're seeing, as I said in the prepared remarks, is an acceleration of the market in general, but we're still well below the previous peak. And given the pipeline of opportunities that we've got, the technologies and the products that we've got, I think the long-term trends are going to be very, very strong, accelerated of course by the obvious need for resilience and driven by automation as a result of the pandemic. But, Mike, you might want to add? Mike Lucarelli: Yes, sure. C. J., you're right. If you look at our Industrial business, we did just achieve a record quarter and we're guiding to another record quarter. So I'll clarify that. But what's interesting is if you peel back a bit, we have six application areas within industrial. Only two of them are above previous peaks. So there's a lot more room for upside across all the verticals. But even if you look back at previous peaks, there's still four application areas we still have more room to run before we hit those peaks. Automation being one of those as well. So I think, as Vince said, it's a long-term growth market, automation and industrial, and you're starting to see that business turn late last year into this year. And I think that continues hopefully into 2022. Prashanth Mahendra-Rajah: Maybe just to close on that, C. J., we've been gaining share in industrial, and we've been gaining share over the last couple of years while the market hasn't been as strong. Now you're going to see the compounding effect of a growing market with the benefits of the share that we've picked up. So I think you will see significant outperformance for ADI's industrial business versus our peers over the balance of this year. Vince Roche: I think healthcare as well, C.J., is worth noting that it still remains considerably above pre-COVID levels. We obviously got a boost during the upsurge in COVID-19. And again, I think this has been growing at 10% for the past five or seven years. I think, a multi-year growth market, and we're beginning to see also the acceleration of demand as a result of the pandemic getting healthcare capabilities to anywhere so to speak. So I think - we look across industrial as an area where we've been, I'd say, steering a lot of our R&D over the last decade or so. It's kind of a long burn business, but we're seeing the benefits now in terms of strength of our technology pipe and our customer engagements. C. J. Muse: Thank you. Mike Lucarelli: All right. Thanks, C.J., and thanks, everyone, for joining us this morning. A copy of the transcript will be available on the website. Thanks for joining the call and your continued interest in Analog Devices. Have a good day. Operator: This concludes today's Analog Devices' conference call. You may now disconnect.