Analog Devices at Citi’s 2025 Conference: Strategic Growth and Challenges

On Thursday, 04 September 2025, Analog Devices (NASDAQ:ADI) participated in Citi’s 2025 Global Technology, Media and Telecommunications Conference. The company highlighted its robust growth in the industrial sector and strategic plans for the future, while acknowledging challenges such as trade uncertainties and inventory management. The discussion provided insights into ADI’s financial performance and operational strategies.

Key Takeaways

• ADI’s industrial business leads growth, with all markets and geographies expanding.
• Automotive sector faces a temporary pull-in correction but anticipates a record year in 2025.
• The company plans to return 100% of free cash flow to shareholders, focusing on dividends and share repurchases.
• ADI is on track to achieve $1 billion in revenue synergies from the Maxim acquisition by 2027.
• Manufacturing strategy includes a significant U.S. presence and a hybrid model for resiliency.

Financial Results

Analog Devices reported robust quarterly growth, primarily driven by its industrial sector, which is the company’s most profitable segment. The industrial business is expected to maintain strong growth into the fourth quarter, surpassing typical seasonal levels. However, the automotive business anticipates a sub-seasonal fourth quarter due to a correction of earlier pull-in activities, although a record year is projected for 2025.

ADI aims to sustain a gross margin above 70%, with a long-term operating margin target of 42% to 50%. Capital allocation strategy involves returning 100% of free cash flow to shareholders, with 40% to 60% allocated to dividends and the remainder for share repurchases.

Operational Updates

The industrial business continues to recover, driven by a severe inventory correction and underlying demand. Aerospace and defense contribute approximately 20% of industrial revenue. ADI’s automotive sector is poised for growth, with content gains expected to increase by 10% over the next decade.

Inventory levels have been reduced aggressively, with channel levels now under six weeks. ADI is rebuilding inventory to capture cyclical upturns, adding another $70 million this quarter. The company operates a hybrid manufacturing model, with significant investments in U.S. facilities and a target of 4% to 6% of revenue for long-term capital expenditures.

Future Outlook

ADI sees continued opportunities for growth in industrial sectors, driven by advancements in AI, automation, and robotics. The company expects record design wins in China to support future automotive growth, despite ongoing uncertainties related to tariffs and trade negotiations.

Macroeconomic factors, such as choppy PMIs and potential rate decreases, are being monitored for their impact on industrial demand. ADI remains committed to stable pricing, while keeping an eye on inflationary pressures and market conditions.

Q&A Highlights

Rich Pucio, CFO, emphasized the recovery in the industrial sector, attributing it to a significant inventory correction and strong demand. The automotive inventory remained relatively stable compared to other markets. ADI’s China operations are experiencing growth across all markets, though still below peak levels except for automotive.

Visibility remains limited due to short lead times, but the company has seen an increasing backlog over the past three quarters. ADI’s inventory strategy focuses on building back levels to leverage cyclical upturns, supported by strong manufacturing partnerships.

For more detailed insights, readers are encouraged to refer to the full transcript below.

Full transcript - Citi’s 2025 Global Technology, Media and Telecommunications Conference:

Chris Dainley, Semiconductor Analyst, Citi: I’m gonna turn up the lights. Okay. Great. Is this on? Thanks, everyone.

Chris Dainley, your friendly neighborhood semiconductor analyst here at Citi. It’s our distinct pleasure next to have up ADI Analog Devices. We have Rich Pucio, the CFO. ADI is one of our favorite companies, and we think that, you know, one of the reasons or a couple of the reasons why we like the stock so much is you you kinda get the best of both worlds. As we’ve seen at this conference, there’s a lot of crosscurrents going on out there.

I leave it to Rich to sort all those out, the Oracle of Boston. But, you know, whether or not we have this continued upturn and things get even better, ADI has the leverage as evidenced by I think they’ve had the best revenue growth of any of their peers this year. On the other hand, if these macro issues do continue and we have a little bit of a pause in the upturn, ADI has the high sustainable margins and generous free cash flow to prevent any dam or minimize the damage from that. So you get the best of both worlds. At least that’s what I tell people.

Anyway, so, Rich, thanks for thanks for coming. Thanks for having me. You know, you guys are probably one of the more recent companies to report. So if you could just give us just a brief recap from, I think it was two weeks ago, the conference call, and then we’ll dig in from there. And, again, thanks

Rich Pucio, CFO, Analog Devices: for coming. Appreciate you having me. So so, you know, for us and and we’ve been talking about this for a while. We were pretty confident that industrial was gonna lead our recovery back out of the cyclical trough, rewind back to, you know, our ’24. You know, we we felt like we had hit the hit the bottom of the trough, and we expected that we would start to see some reacceleration in the business, you know, with some modest sequential increases in the ’24.

And then as the cyclical and idiosyncratic drivers for ADI started to play in, we’d see more growth. And and that has, in fact, started to play out. You you saw in our results, very strong quarter growth led by our industrial business, which is important. That is the bedrock of our business. It’s also the most profitable part of our business.

And it is it has grown strongly, and we expect that it will grow again in q four, which will be a, you know, pretty far above typical seasonal for us to see as much growth as we’ve forecasted into q four. You know, and that’s a really important part of our business. And one of the things, you know, as we’ve worked through this cycle, and I think a little bit of the chop that we’ve all seen is not all of the sub segments, whether it’s an industrial or our end markets have followed the same pattern. But for us, we’ve gotten to the point now where all of our end markets and all of our geographies are growing on the industrial side, and we feel really good about some of the and we’ll talk more about them as we go. I’m sure some more of the idiosyncratic things at ADI that are helping us grow in addition to some of the cyclical pieces.

You know, obviously, we had had, you know, a a really good, overall result. And then from an end market perspective, you know, the only thing that was a little bit different, which we’ve talked about now for two quarters, is we did have a little bit of incremental pull in activity that we think is gonna correct in in the fourth quarter. And, you know, we’ve had two quarters now, and they were a little bit different. So if you if you remember the conversations coming out of our q two, we saw we thought we saw auto pull ins and estimated that in Q2 in North America and Europe. And then in Q3, we saw some incremental pull in activity in China.

So when you look in the opposite of the strength we’re seeing in industrial for 4Q, we will see a sub seasonal quarter from an auto perspective as we get that correction behind us. But we still feel really well positioned and record 2025 will be a record year for us from an auto perspective. Obviously, we continue to have very strong consumer results. We’ve talked about the broadening of our portfolio of sockets there, and we’ve had continue to have new wins have new wins ramping in that space. Feel really strong across both, you know, handsets, hearables, wearables, gaming devices.

So that’s been a strong part of our business. And then you look on the communication side, which for us is, you know, wireline and wireless. On the wireline side, we’ve continued to see really strong growth and in support of the data center. You know, because in the data centers, we’re we’re put you know, we’re selling in our optical modules and connectivity, and we’re also selling in, you know, power management products and and for hot swap power management, etcetera. So that’s been a really strong market for us, and we’re growing very rapidly in the back half of the year.

So that leads us to, you know, where we feel pretty good about where we are in the in the end of quarter and heading into the four q. And we’ve you know, as we’ve we’ve talked about a little bit, we you know, we’ve I’ve seen mid signs of the cyclical upturn that we’ve been talking about happening for us. Right? We’re, you know, now multi quarters into pretty, pretty strong growth. Mhmm.

Chris Dainley, Semiconductor Analyst, Citi: If we sort of take out the, the pull in volatility, maybe talk about, like, how the recovery in your core business has gone, the other 95% of it. Maybe start with, you know, at the beginning of the year, lot of uncertainty out there. You guys are one of the first companies to talk about, hey, business is getting better, bookings are getting better. I remember you were first to talk about the industrial business stabilizing a year ago, where you said, hey. Half of our industrial business is starting to get better, and the other half is not.

And then pretty soon, it was everything is better. So maybe just if we x out the the pull ins, we’ll talk about that in a little bit, but your core business, how that sort of trended this year starting in, I guess, the the the Feb quarter or the Feb rent?

Rich Pucio, CFO, Analog Devices: So I you you that was a great tee up. You know, we were really leaning hard on two parts of our industrial business, particular, where we’ve talked about we had real strength in our aerospace and defense business and real estate real strength in our our automatic test business. So those two pieces of our business were very strong from the get go. And as you think about those, the aerospace and defense has been a good market and all of the external economic data and reporting about the increased spend military and otherwise, you know, as Europe rearms itself and other parts of the world start doing that, you know, we feel really good about where we’re positioned there and for currently and going forward on aerospace and defense. And then again tied into this huge infrastructure boom is on on the ATE, you know, all of that infrastructure requires high bandwidth memory, high performance compute, which requires more complex testing, which means more content for ADI in the testers, and we have a very strong share in testers.

So that was the an initial part of the growth. Yep. Right? And then as we started to progress into the into the year, and I talked about automation in in a couple of quarters, we started the automation start to turn, and automation is now growing growing two straight quarters. We are seeing growth in our, digital health care businesses, and we’re also seeing growth in our any any big energy management area.

So across the industrial sub segment, you know, we feel like we’ve, done really well. That’s the idiosyncratic piece. Also, if you think about it from a cycle perspective, we were out in front of reducing inventories pretty quickly. So we’ve been reducing inventory both in our channel and in our customers for the better part of two years now. And I think that positions us really well because we are, you know, at the, you know, some of the lowest channel levels we’ve ever been.

We’re well below our sort of historical seven to eight week channel model. So we feel good about where we’re positioned there. And the work we do to to look at what’s on our our non disti customers balance sheets from an inventory perspective, you know, that has, you know, the signs there or that has normalized back down to levels. And we see it in the orders, net new orders for some of those customers coming through. So we feel good there.

And I still think there’s room to run because if you think about the sort of the consumption line, assuming that that industrial business would typically grow 5% or 6% CAGR over any period of time. If you run that line out from pick your starting point to where we are today, even with the strength of the industrial recovery, we’ll still be below that trend line. We’re also still 30% below our peak in industrial. Yep. And I I think that’s an an important thing.

So I I think that we continue to see room for us to grow, given we’re we’re below that, still below the trend line and below our peaks. So I think that’s that’s an important piece on on the industrial side. And and and other than auto, all of

Chris Dainley, Semiconductor Analyst, Citi: our businesses are still below their peak values. Yeah. By the way, we had a couple of companies talk about how strong the aerospace and defense, mil aero businesses. How big is that for ADI?

Rich Pucio, CFO, Analog Devices: Is that like double digits percent of revenue? Aerospace and defense is about 20%

Chris Dainley, Semiconductor Analyst, Citi: of our industrial. 20% of industrial. Got it. I’ll take it. Alright.

So maybe just talk about since you guys just reported the linearity of bookings last quarter, did you see, like, a steady increase, or was it a little more volatile? How how did that how did that go last quarter?

Rich Pucio, CFO, Analog Devices: Our our linear our booking was pretty linear, you know, obviously, increasing. And and and whether you looked at it on a four week trail or a thirteen week trail, you looked at the actual just weekly bookings. Yeah. You know, that was a it was a pretty linear progression throughout the quarter. You know, obviously, strong stronger on the industrial side, you know, as we’ve talked about and probably a little bit weaker on the auto side given what we’ve talked about previously, but pretty steady.

Chris Dainley, Semiconductor Analyst, Citi: Another one of your competitors talked about the automotive. I got to

Rich Pucio, CFO, Analog Devices: get on this first, so you can’t compare me to everybody.

Chris Dainley, Semiconductor Analyst, Citi: That’s kind of the object of the conference. We’re happy to put you on anytime you want. So they mentioned that while the automotive order rates to the send user down, like, the end demand for autos is still pretty good, and they’re just working through some inventory. Is that pretty much concurrent with what you guys see out there? And any guess as to when the automotive supply chain will

Rich Pucio, CFO, Analog Devices: be through digesting the inventory? It’s it’s interesting. If if I use what we see in our business, you know, we we never got as far out of place on inventory in automotive as maybe our other end markets. Yeah. But also with what we’ve seen in the area where we continue to see some inventory burn, which had an impact on us, was the BMS part of our auto business.

But if you look you look across the rest of our business, you know, I I don’t I don’t think other than this correction for the the anomaly in the pool, you know, I don’t think there’s still a big inventory burn there. Mhmm. And, you know, an important part of that auto story for us is the continued content gain. Right? Because if you look at our business over, you know, pick at a ten year or a five year window, our auto business outgrows our

Chris Dainley, Semiconductor Analyst, Citi: Yep.

Rich Pucio, CFO, Analog Devices: By by low double digits. So and what’s interesting, and you probably all see this, anybody who’s bought a car recently, whether it’s a high priced car, low or medium, there’s more and more content. And so with our leading positions in in connectivity, whether it’s a to b or g m s l, functionally safe power. All of this in cabin immersive experience, the level two ADAS that’s being pushed into cars, those are all real content gains for us. Yep.

And so that 10% content gain that we got over a ten year period, if you actually bifurcate that and look at the last five years, it’s actually almost a 15% spread. Now it’s a combination of content gain and some share gain, but a big piece of that is the content gain because we’re continuing to see more more sensor modalities and more microphones, cameras, speakers, etcetera in cars that need connectivity and functionally safe power. So, you know, I think that positions us well in that market.

Chris Dainley, Semiconductor Analyst, Citi: Got it. Yeah. Just to touch on the industrial revenue. I mean, it’s really it’s bouncing back pretty hard for everybody, but in particular for for analog devices, but this is a fairly common theme we’ve heard throughout the conference. Why do you think industrial is coming back so strong?

Do you think it’s just because for most folks, it was down 40 something percent, and we have to do some inventory replenishment? Has demand gotten a little bit better, some combination, something else out there? What’s your sense as to why it’s been so good? And you said it was still 30%?

Rich Pucio, CFO, Analog Devices: On a trailing twelve month basis, industrial is still 30% below our peak. I I do think an element of this is it was the most severe inventory correction we’ve ever seen, which, you know and it lasted longer than we’ve typically seen a correction. Yep. And I think companies leaned out their balance sheets, but as as the industrial piece starts to pick up now look, the the macro signals are still mixed around industrial, but the but the build for the rebound for us has been has been pretty strong. And I think that the inventory treatment has varied by customer, by

Chris Dainley, Semiconductor Analyst, Citi: Yep.

Rich Pucio, CFO, Analog Devices: Vendor, and by end market Mhmm. Which is a little bit of that choppiness that we’re seeing. Yep.

Chris Dainley, Semiconductor Analyst, Citi: But I I still think the majority of that is because of the severity of the inventory over ship during that run up after the supply change breakage. Because your industrial business has bounced back so hard, has there been any change in lead times of any of the products? Have you started to to run out of of anything out there?

Rich Pucio, CFO, Analog Devices: So we’re the majority of our products are still running lead lead lead times under thirteen weeks. You know, Vince talked about on the call that we had some longer lead times in a few spots, particularly in aerospace and defense, which we expect will get corrected over the next quarter. But otherwise, we haven’t seen any significant deterioration in our lead times. You know, I think in a few of the high runners, maybe in ATE, we might be a little bit longer than thirteen weeks on some of the parts, but the majority of our parts are under 13 weekly times. Okay.

Which which is you know, it’s great. It’s also one of those limiting things from a visibility perspective for us because we are at thirteen weeks.

Chris Dainley, Semiconductor Analyst, Citi: Yeah. We’ll get the visibility in a second. Alright. One of one of the thing that Vince did talk about was this macro uncertainty and and you mentioned it. Can you guys just define that a little bit?

Is it just the whole tariff thing? Is it what you’re hearing from your customers? What you’re reading in the paper? All of the above?

Rich Pucio, CFO, Analog Devices: So it’s so I I would say a couple of ways, and it’s uncertainty both ways because it’s it’s the tariff and trade uncertainty. And for us, you know, and we’ve talked about this before, the tariff and trade uncertainty is less about the direct impact to us, right, than the impact of tariffs as they exist today is pretty nominal for us. But what it does matter is what is it doing to GDP and what is it doing to demand creation demand destruction because our products are in a lot of end markets where there are tariffs already. Yeah. And does that drive down demand and what does that do to GDP?

So that’s that’s certainly an uncertainty and that clouds the picture because two of the largest economies in the world are still in negotiations with our administration around the trade policies. Right? So we still don’t yet know where China and India will land on this spectrum. Yep. We’ve still got some potential even additional tariffs in our space specifically to come.

Right? So I think that’s a level of uncertainty. Second piece I mentioned a little bit, you know, if you look at which for us industrial is a is a this is a really good barometer for us. The PMIs have been choppy. Mhmm.

Right? They’re hovering around 50, but we’ve had a couple of months of contractionary PMIs. So, you know, you gotta pay attention to that because it does, you know, has historically been a leading indicator Yep. For where we’re headed. The other piece is uncertainty around SAR.

Right? The number of vehicles are gonna be produced. Mhmm. You know, you look at the pressure, the rebates being removed in The US, the tariffs and the impact they’re having on auto demand, and it’s unclear what auto production plans might look like in ’26. Yep.

Now I feel good that we’ll, you know, be able to get more than whatever SAAR is because of content, but we still don’t have a good look in SAAR. So those are some of the things from a challenging macro perspective. The flip side is given some of the other macro data and the pressure that’s now on the Fed, you know, we might see rate rate decreases, which the market’s been pricing in a little bit, and there’s a lot of anticipation for that. Mhmm. That could be positive.

And and if we can solve in the next, you know, three months or between now and the end of the year, the remaining tariff things, getting some certainty will help us better shape the outlooks for ’26

Chris Dainley, Semiconductor Analyst, Citi: Yep.

Rich Pucio, CFO, Analog Devices: Broadly across our industry and our customers’ industries.

Chris Dainley, Semiconductor Analyst, Citi: If we look at auto versus industrial longer term, which end market for ADI do you think will grow faster? Let’s say over the next, like, three, five, ten years.

Rich Pucio, CFO, Analog Devices: It’s a great question. I mean, industrial is the core of our business. It is and it is our most powerful franchise. I think if you look at some of the continuing opportunities there where we see growth, whether it’s the AI driven, whether it is the trend in automation and robotics, you know, I I think we’ll continue to grow very strongly on the industrial side. Okay.

Chris Dainley, Semiconductor Analyst, Citi: Great. And then in terms of geography, you know, there’s this whole China for China fear. One of the last I checked, that’s been around for, like, twenty five years since since I got into the business. And how does that impact ADI, if any? And how’s your China business trended this year?

Our China business has trended strong. It was the first in to the downturn for us.

Rich Pucio, CFO, Analog Devices: It was the first out and it has grown strong across all of the markets.

Chris Dainley, Semiconductor Analyst, Citi: It’s been your strongest

Rich Pucio, CFO, Analog Devices: Very dominant this from a growth perspective on the auto side. But now more broadly, as the year progressed, you know, all all of the markets in China are growing. But that’s also an interesting point for us is we’re still below peaks in all of the end markets in China except for auto and well below, at least 30% below in each of the other ones. Auto has been super strong, but we’re still well below peak in the others. And the competition there is strong, but we can but we continue to deliver and win there.

And I and look, we we do we do a lot of those things. Right? We have we have a design team in China that designs in China for China. You know, we do have some small manufacturing, you know, through a partner in China. But it is a that that what we do today from a China perspective is, you know, very low percentage is actually manufactured in China.

But, you know, from a performance perspective, you know, where they need the highest performance products and they still need analog, they’re still buying from us, you know. Even in places where they’ve tried to push in and get locals, you know, at the high performance end, we’re still winning. So I think that’s an important differentiator for us as we tend to play more in the the high performance and less in the good enough sort of low ASP area. The low ASP bands are not big part of our business.

Chris Dainley, Semiconductor Analyst, Citi: Yeah. Yeah. You guys are thankfully, you’re not there. We we we just to dig in a little bit on the auto space, you know, and your industrial business has basically done the Statue Of Liberty move this year. How’s the the auto business trended?

And then I just wanted to clarify, have the pull ins, have they been all in the auto business or has

Rich Pucio, CFO, Analog Devices: it been in other businesses? So we have not seen It’s impossible to be perfectly precise. Crystal ball is way better than mine. So I Well, and people don’t call and tell us they’re pulling in orders. But we we saw pretty clear signs both in our data when it was, you know, around bookings and what we were hearing from our field teams around the around the pull ins in auto.

And you could see it, we overachieved in Q2 in two regions in auto that we didn’t expect, which was The U. S. And Europe. And then we overachieved China has been strong and we weren’t expecting it to be as strong in the third quarter. So that was confirmatory evidence to what we heard.

And we do think that sorts itself out here in the fourth quarter. But overall, it continues to be a very strong growth market for us. We feel very like we’re very well positioned. We had and if you want to think of more medium, long term, we had record design wins in China in ’twenty five and we continue to see increased design wins in China again, sorry, record designs in ’twenty four and increases in ’twenty five. So we feel like we’re very well positioned there in in the market broadly, and we like the growth trend we’re seeing there.

Chris Dainley, Semiconductor Analyst, Citi: Okay. And, you know, with the business getting better, how is your visibility changed? Are you are you seeing, like, are you allocating for, like, less turns in general? Have you seen your turns business increase? And has your visibility changed at all for, say, three, six, or nine months versus, you know, last quarter, the quarter before?

Rich Pucio, CFO, Analog Devices: So I would say visibility hasn’t really changed much for us. We’re probably So lead times are still flat. Because of the relatively short lead times or in quarter lead times, visibility is still largely out of quarter. Do we have some order book in backlog that’s beyond the quarter out? Yes, enough to give a concise point of view on where a quarter beyond where we are now.

We just don’t have that kind of data given the short lead times and the way customers order. And then what was your second part of the question? Oh, just about backlog. Oh, yes. So we do have some backlog in, but we’ve one of the trends we’ve seen overall at the company is last three quarters, we’ve seen increasing backlog.

Chris Dainley, Semiconductor Analyst, Citi: Yes. Great. One question is pricing. So there’s been some reports of one of your larger competitors raising pricing. Are you guys raising pricing too?

Is this an opportunity to gain share? What’s the what’s that mean for ADI?

Rich Pucio, CFO, Analog Devices: So I won’t comment on what my competitors are doing. What we’ve said and Vince actually said it again on the call is pricing for us has been pretty stable, right. We had a lot of price increase in ’twenty two and ’twenty three, ’twenty four and ’twenty five have been pretty stable from a pricing perspective. That said, we’ve invested pretty significantly in resiliency and in our hybrid manufacturing process, which comes with a cost. Also broadly many of the inputs are inflationary.

So we continue to track and monitor that and the market to evaluate whether we should alter our pricing. So we will continue to watch that. But right now, the forecast is for stable pricing.

Chris Dainley, Semiconductor Analyst, Citi: And how are you guys treating your inventory and your own utilization rate plans? And I think right now, you’re fifty fifty in source versus outsource manufacturing?

Rich Pucio, CFO, Analog Devices: Yeah. We are about split half internal, external. You know, from our inventory perspective, and I started talking about this a few quarters ago, maybe it might have been four quarters ago, that we would start to build back some after very aggressively taking inventory off our balance sheet. We started to build back some of that so that we have inventory available to capture what is turning out for us to be the cyclical upturn. So we are doing that.

Now you see our because of the revenue growth, our days are coming down, but we still put another $70,000,000 of inventory. And we’re trying to capture as much of that at the die bank level to give us more flexibility going forward as we see the growth. We are continuing to run our channel very light, well below our historical levels. And we are continuing to be able to meet the service obligations as is our channel partners. But if we continue to see growth there, you know, we will likely need to have some more inventory in the channel.

Chris Dainley, Semiconductor Analyst, Citi: Can you give us a sense of ADI’s inventory now and what the the goal or the target is? So the currently,

Rich Pucio, CFO, Analog Devices: we’re running under six weeks, and I think that we probably you know, we we we will need over the longer growth period to get back probably closer to something six weeks or six weeks plus.

Chris Dainley, Semiconductor Analyst, Citi: Okay.

Rich Pucio, CFO, Analog Devices: But I don’t see us getting much higher than that given what we’ve done on the back end because our back end cycle time is about six weeks.

Chris Dainley, Semiconductor Analyst, Citi: Are there any plans to change that fifty fifty mix, by the way, in terms of internal and outsourced manufacturing?

Rich Pucio, CFO, Analog Devices: Not right now.

Chris Dainley, Semiconductor Analyst, Citi: And any difficulty getting any wafers given the increase in sales? Or can you guys pretty much get what you need on

Rich Pucio, CFO, Analog Devices: the Yes. We not had any of the any kind of challenges with wafer supply.

Chris Dainley, Semiconductor Analyst, Citi: And how about I ask every company this because it’s obviously in the news. There seems to be a move to get more manufacturing in The U. S. By semiconductor companies. I’m sure you’ve heard about that.

How does that impact ADI? Does it impact ADI?

Rich Pucio, CFO, Analog Devices: We already have a pretty substantial portion of our manufacturing in The U. S. So if you think about our manufacturing footprint, we’ve got two factories on the West Coast in Washington and Oregon. And in fact, when we talked about the resiliency build that we were doing, a big part of that investment was in our Oregon fab. So we’ve got significant manufacturing in the West Coast and then we’ve got two manufacturing locations here on the East Coast, specifically in Massachusetts.

And then you guys know the rest of the story. We’ve got manufacturing in Ireland, and then we’ve got a you know, back end spread across a number of facilities Yep. In Asia. And so you know, if you think about the push for domestic, we we are already building pretty significantly. In addition, we continue to expand, not just the manufacturing, but our R and D presence.

We’re adding design centers in The U. S. And these are all the things that the administration is looking for, right, because the design leads to more manufacturing and more things happening in The States. So we feel like our hybrid model and our global diversity positions us pretty well.

Chris Dainley, Semiconductor Analyst, Citi: Yes. So I would be remiss if I didn’t start asking a CFO up here about cash and all that fun stuff. But first, want to take a bit of a step back. You know, you guys have been very successful in m and a. This is pre rich days, but starting with linear and then with Maxim.

I remember when you guys first bought Maxim, I think it’s five, six years ago, you talked about synergies from a cost side, which I would assume are all done, but also from a revenue side. And we haven’t talked about that in a while. Any update on those?

Rich Pucio, CFO, Analog Devices: So when we talked about what we said at the time of the acquisition is by ’27, we’d have about $1,000,000,000 worth of revenue synergies out of the Maxim deal. So ’24, we and if you think about the typical design in life cycle, know, it’s going to take us a few years to get there. ’24, we had tens of million dollars of what we would have we called synergies. ’twenty five we will have hundreds of millions and we are on track to hit the $1,000,000,000 And so if you think about so what are those some of those synergies, GMSL which has been one of our high growth very high growth products, one of the key synergies that came from that deal. The other is if you think about some of the things we’ve talked about in the wins in the consumer space where you combine maximum low power features with ADI’s ability to do vital signs monitoring and sensing, and how that’s impacted our ability to sell in the hearables and wearable space.

Some of the Maxim power is helping us do the things we’re doing in the data center. So across a number of portfolio parts of our portfolio, we’re seeing those synergies come through. And, you know, literally my team and I meet quarterly to review where we are against the billion, and we are on track for that billion dollars.

Chris Dainley, Semiconductor Analyst, Citi: In ’27? ’27. Great. And then can you just refresh us on the long term margin targets for ADI and then the, I guess, the portion of the gross margin leverage you get from mixed utilization rates, etcetera, etcetera? Sure.

So when my my predecessors put out the the the model, the op the operating margin number was for I believe it

Rich Pucio, CFO, Analog Devices: was 42 to 50, and the gross margin was we would try to stay above a 70 floor, which we know is a challenge during the downturn, although I felt pretty good where we’re able to hold given the severity of the downturn. And as we talked about in the call, we’re guiding getting back to 70% in our fourth quarter. And there’s a couple of drivers there, particularly if you think about it, the gross margin line where we get a ton of leverage, it’s our mix and it’s the utilization and what it does to our variance accounting. Think about the mix, if you take our guide for Q4 industrial, we would end with that guide at about a 49% industrial mix for the quarter and maybe 46 ish for the year, which is still well below our peaks when we were at our highest profitability. I think the industrial was more like 53% of our But the increase in industrial for us is gross margin accretive.

The other thing is just the sheer volume increase and the utilization improvements driving down better absorption in our internal factories, which we’re seeing both. If you go back to the peak and where we dropped to in the trough, it was roughly half each. Half was utilization driven, half was mix driven. Yep. So as the mix rebounds and utilization rebounds, we continue to see upside gross margin opportunity.

Chris Dainley, Semiconductor Analyst, Citi: Great. So yes, here we are kind of bouncing off the bottom and you guys still generate a ton of cash.

Rich Pucio, CFO, Analog Devices: 35% cash flow margin.

Chris Dainley, Semiconductor Analyst, Citi: For those of you keeping score at home, what are the plans to deploy the cash? And then could we see more M and A given the success you guys have had previously?

Rich Pucio, CFO, Analog Devices: So our what we’ve told our investors is we will return over the long term post Maxim over the long term 100% of our free cash flow to shareholders. And we are on a path to do that. And the way we allocate that is roughly 40% to 60% of our free cash flow goes for our dividend, which for those of you paying attention, we’ve increased again this year for our twenty first straight year of increasing dividends. And then the residual we will use to retire shares. And you saw a pretty aggressive step up in share retirement and buybacks in the third quarter.

And that’s a planned activity. We tend not to buy as much back during our second quarter, given the dynamics in that quarter. So we will continue to do that. The other thing that you and I talked about this when we were chatting yesterday, we did take make an do an opportunistic bond offering earlier this year. The markets were very constructive and we were able to actually do a really good deal to essentially pre fund our next two maturities in our debt tower.

Not that different from what we did months after I started originally. We did a bond offering to retire the two tranches we just retired late ’twenty four, early ’twenty five. So market was favorable, gave us an opportunity to derisk it. That’s So a little bit why we have a bigger gross cash number than we’ve had in the past is capturing that, it’s on our balance sheet. And fortunately, we’re able to invest that at yields that, you know, is a pretty neutral cost having So done that’s a good thing.

On the M and A front, look, we are very satisfied, Vince says the same thing, very satisfied with our analog, mixed signal and power portfolios. We are continuing to aggressively invest internally in software and digital, and we continue in AI, and we continue to look for opportunities there. So there are anywhere we can find something that can help us solve a customer problem, accelerate time to market with a solution, we’re looking at those types of transactions. So we will continue to look at that.

Chris Dainley, Semiconductor Analyst, Citi: Great. And then since I have the CFO touch on the CapEx and depreciation over the next few years.

Rich Pucio, CFO, Analog Devices: So obviously, went through a significant resiliency campaign as we were building out our Harvard model and we spent about $3,000,000,000 on CapEx between ’twenty two and ’twenty four to build out that resiliency and also to cross qualify our products internally and externally, and to make sure we had resilient supply chain outside of China. So work is largely complete. Some of the resiliency will get fully completed when we get our capacity online with TSMC in Japan, which will be really important. We’ll be able to do 95% of our manufacturing of product outside of China and Taiwan.

Chris Dainley, Semiconductor Analyst, Citi: That’s two years from now?

Rich Pucio, CFO, Analog Devices: Yes. So that was really important. Now we’ve also said we’re getting back on our long term model, which for us, we’re historically CapEx light. That means 4% to 6% of our revenue dollars will go to CapEx. We’re tracking to that four to 6% for 25%, which is another reduction from where we were in ’24.

And ’24 was a very significant reduction from ’23. Now what that has done, as you guys are all great at math, is that resiliency campaign increases the level of revenue we need to get back to the margins we saw in the earlier peaks. Yeah. Right? You know, rough you know, you guys can go figure out 30,000,000 in average depreciation wise, you know, it’s, you know, it’s at least a 150 bps a headwind

Chris Dainley, Semiconductor Analyst, Citi: Yeah. From a depreciation perspective coming through from resiliency campaign. When does depreciation peak for ADI?

Rich Pucio, CFO, Analog Devices: It’s a great question. I don’t know

Chris Dainley, Semiconductor Analyst, Citi: the answer when it peaks. Okay. Last question. Mhmm. Would it ever make sense for you guys to do your own 300 millimeter fab?

Or because you outsource 50%. Is that

Rich Pucio, CFO, Analog Devices: It we have incredibly strong partnerships, which gives us confidence that we don’t need to do that. It’s also an incredibly expensive, incredibly CapEx heavy Yeah. Process. I am quite happy to use my partner’s capital.

Chris Dainley, Semiconductor Analyst, Citi: Got it. Great. We’re out of time. Thanks, Rich.

Rich Pucio, CFO, Analog Devices: All right. Thanks, Chris.

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