Analog Devices(ADI)2023-08-23 23:03Financial Data and Key Metrics - Revenue for Q3 2023 was nearly 2.49, within the guidance range [18] - Cash position at the end of the quarter was over 3.7 billion, representing 29% of revenue [19] Business Line Performance - Industrial segment represented 53% of revenue, down 7% sequentially but up 4% year-over-year, led by sustainable energy and aerospace & defense [16] - Automotive segment represented 24% of revenue, down modestly sequentially but up 15% year-over-year, driven by battery management and in-cabin connectivity solutions [16][17] - Communications segment, representing 12% of revenue, decreased double digits both sequentially and year-over-year due to inventory correction [17] - Consumer segment, representing 10% of revenue, was up 15% sequentially but down 21% year-over-year [18] Market Performance - Industrial market saw double-digit growth in sustainable energy and aerospace & defense [16] - Automotive market continued to show strong growth, particularly in battery management systems and in-cabin connectivity solutions [16][17] - Communications market faced challenges due to inventory adjustments, particularly in wireless and wireline segments [17][38] - Consumer market performed better than expected sequentially but remains under pressure year-over-year [18] Company Strategy and Industry Competition - The company is focused on long-term growth driven by secular trends such as electrification, sustainable energy, and digital healthcare [7][8][41] - ADI is leveraging its leadership in battery management systems (BMS) and expanding into power conversion solutions for electric vehicles [13][14] - The company is investing in grid modernization and energy storage systems, with technologies used in 60% of energy storage systems globally [11][12] - ADI is also developing silicon carbide-based smart switches for bidirectional onboard charging, which could double content opportunity per EV powertrain [14] Management Commentary on Operating Environment and Future Outlook - Management expects the current inventory correction to last two to three quarters, with a return to growth thereafter [26][27] - The company is strategically undershipping to help normalize customer inventory levels, particularly in Asia and China [19][60] - Gross margins are expected to remain above 70% on a trailing 12-month basis, supported by the hybrid manufacturing model and swing capacity [22][33] - Q4 2023 revenue guidance is 100 million, with all markets expected to be down sequentially [20] Other Important Information - The company is reducing utilization and external wafer purchases to manage inventory levels [21] - ADI has returned nearly $5 billion to shareholders over the trailing 12 months through buybacks and dividends [19][23] - The company expects CapEx to decline in 2024 after reaching a high watermark in 2023 [19] Q&A Session Summary Question: Inventory Correction and Recovery Timeline [25] - Management believes the inventory correction will last two to three quarters, with recovery expected in the next few quarters [26][27] Question: Q1 Seasonality and Gross Margins [30] - Q1 is expected to be down mid-single digits seasonally, with gross margins likely to remain above 70% [32][33] Question: Communications Market Outlook [37] - The wireline segment is expected to recover in early 2024, while wireless faces headwinds due to slower 5G deployments [38][39] Question: Auto Market and Potential UAW Strike Impact [55] - The automotive market is expected to perform relatively better than industrial, with no significant impact anticipated from potential UAW strikes [56][57] Question: Inventory Management and Lead Times [59] - The company is strategically undershipping to reduce channel inventory, with 85% of products now available within 13 weeks [60][63] Question: Pricing and Inventory Days [65] - Pricing is expected to remain stable, with no significant cost reductions expected from foundries [67] - Inventory days are expected to decrease, but not return to pre-pandemic levels of 120 days [68] Question: Undershipment Quantification [70] - The company is undershipping both through the channel and direct customers to help normalize inventory levels [71][72]