Release Date: November 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Analog Devices Inc (ADI, Financial) reported a strong recovery from its second quarter cyclical bottom, with revenue, operating margin, and earnings per share all finishing above the midpoint of their outlook.
- The company achieved a 41% operating margin for the year and a free cash flow margin of 33%, up from 29% in fiscal '23.
- ADI's intense focus on R&D led to double-digit growth in their design win pipeline during fiscal '24, enhancing their Maxim revenue synergies pipeline.
- The company has made significant investments in its manufacturing capabilities, including a $2.7 billion CapEx since acquiring Maxim, to increase capacity and enhance resiliency.
- ADI's automotive sector showed resilience with substantial pipeline growth among OEMs, and the company expects BMS revenues to return to growth in fiscal '25.
Negative Points
- Fiscal '24 revenue was down from a record fiscal '23, driven by broad-based inventory digestion and sluggish end demand.
- Gross margin of 67.9% reflects lower revenue, factory utilization, and mix headwinds, with declines partially offset by lower operating expenses.
- Industrial revenue decreased 35% from a record 2023, with every major application declining double digits except aerospace and defense.
- The communications sector saw a 33% decrease for the year, with relative outperformance in wireline over wireless.
- Despite a strong consumer segment performance, the company expects a seasonal decline in consumer revenue by around 15% in the first quarter of fiscal '25.
Q & A Highlights
Q: Can you provide some color on the strength of the automotive sector, particularly in China, and the impact of EV versus ICE?
A: Richard Puccio, CFO, explained that the automotive sector saw stronger demand in China, driven by EV volume growth, share gains, and content growth. The US also showed growth, particularly in BMS and wireless BMS portfolios. The demand for ADAS and next-gen infotainment continues to drive strength globally for their functionally safe power, audio, and video connectivity solutions.
Q: How do you see the business cycle emerging from the current trough, and what are your expectations for 2025 and 2026?
A: Vincent Roche, CEO, stated that they expect to return to a positive growth trajectory in the second quarter of 2025. The recovery will likely be led by industrial, followed by consumer, communications, and automotive sectors. They anticipate a gradual recovery with industrial showing brisk growth due to healthy customer inventories and green shoots in AI tests and aerospace and defense.
Q: What are the expectations for the industrial sector in fiscal 2025, given the current trends?
A: Richard Puccio noted that the industrial sector has grown sequentially for two quarters since the trough in Q2 of 2024. They expect the recovery to continue, driven by undershipping demand for 18 months, which indicates potential growth as inventory levels normalize.
Q: How are customer orders and pricing discussions progressing in the automotive business, particularly for growth areas like A2B, GMSL, and functional safe power?
A: Richard Puccio mentioned that pricing has been stable, with a focus on high-performance products where customers value performance over price. They continue to command ASPs above the industry average, and pricing tends to remain fixed over long periods, with some volume discounts mitigated by vintage increases on older products.
Q: What is Analog Devices' strategy regarding software products as AI moves to the edge, and how does it differentiate from competitors?
A: Vincent Roche highlighted that ADI uses software to support its analog mixed signal and power solutions, making it easier for customers to use their products. They have launched CodeFusion Studio, an open-source software development environment, and ADI Assure, a security architecture for cybersecurity capabilities, to enhance their offerings.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
