Analog Devices (ADI) Earnings Report: Q4 2015 …Analog Devices (ADI) Earnings Report: Q4 2015 Conference Call Transcript The following Analog Devices conference call took place on

CompanyName:AnalogDevicesIncCompanyTicker:ADISector:T echnologyIndustry:Electronics

EventDescription:Q42015EarningsCallMarketCapasofEventDate:18.64BPriceasofEventDate:60.76

©2014TheStreet,Inc.Al l R ightsReserved Page1of24

AnalogDevices(ADI)EarningsReport:Q42015ConferenceCallTranscriptThefollowingAnalogDevicesconferencecalltookplaceonNovember24,2015,10:00AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

AliHusain;AnalogDevicesIncorporated;Treasurer&DirectorofIRDaveZ insner;AnalogDevicesIncorporated;CFOVincentRoche;AnalogDevicesIncorporated;CEO

OtherPart icipants

RomitShah;NomuraSecuritiesCo.,Ltd.;AnalystChrisDanely;Citigroup;AnalystJohnPitzer;CreditSuisse;AnalystCraigEllis;B.Riley&Co.;AnalystToreSvanberg;StifelNicolaus;AnalystCraigHettenbach;MorganStanley;AnalystAmitDaryanani;RBC;AnalystChrisCaso;SusquehannaFinancial;AnalystWilliamStein;SunTrust;AnalystDavidWong;WellsFargo;AnalystHarlanSur;JPMorgan;AnalystVivekArya;BofaMerillLynch;AnalystSteveSmigie;RaymondJames;AnalystC.J.Muse;EvercoreISI;AnalystTristanGerra;RobertW.Baird;AnalystAmbrishSrivastava;BMO;AnalystHarshKumar;Stephens;AnalystRossSeymore;DeutscheBank;AnalystBlayneCurtis;Barclays;AnalystDougFreedman;SternAgee;AnalystIanIng;MKMPartners;AnalystStephenChin;UBS;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

Atthistime,IwouldliketowelcomeeveryonetoAnalogDevicesfourthquarterandFYearningsconferencecall.

(OperatorInstructions)

Iwouldnowliketoturntheconferenceovertoyourhostfortoday,Mr.AliHusain,TreasurerandDirectorofInvestorRelations.Pleaseproceed.

AliHusain (Treasurer&DirectorofIR):




Great.Thanks,Operator.Itfeelsgoodtosaygoodmorning,everyone.

ThankyouforjoiningADI'sfourthquarterandFYearningsconferencecall.Youcanfindourpressreleaseandtherelatingfinancialschedulesonourinvestorpageatinvestor.analog.com.

Asusual,thismorningI'mjoinedbyADI'sCEO,VincentRoche,andADI'sCFO,DaveZ insner.Theagendaforthismorningasisfollows.First,we'llprovideabriefoverviewofourfourthquarterandFYresults,andthenwe'llprovideourcurrentthinkingandouroutlookforthefirstquarterof.Andfinally,Vincewillcapstonethepreparedremarks,followingwhichwewillopenupthelinesforQ&A.

Sobeforewestart,let'sgetthroughtheimportantdisclosuresthatwehavetomakeeveryquarter.Pleasenotetheinformationwe'reabouttodiscuss,includingourobjectivesandoutlook,includesforward-lookingstatements.

Actualresultsmaydiffermateriallyfromtheseforward-lookingstatementsasaresultofvariousfactors,includingthosediscussedinourearningsreleaseandourmostrecent-K.Theseforward-lookingstatementsreflectouropinionasofthedateofthiscall,andweundertakenoobligationtoupdatetheseforward-lookingstatementsinlightofnewinformationorfutureevents.

Ourcommentstodaywillalsoincludenon-GAAPfinancialmeasures.WhichwehavereconciledtotheirmostdirectlycomparableGAAPfinancialmeasuresintoday'searningsrelease,whichwehavepostedonourIRpageatinvestor.analog.com.Solet'sgetstarted.

Asyou'velikelyseenfromthepressrelease,ADIhadanotherverystrongquarter.Revenueinthefourthquartertotaled$million,increasing%sequentiallyand%yearoveryear.

Theseresultswereabovethehighendofourguidancerange.Primarilyduetostrengthinportableconsumerdevises,andtoalesserextentfromsomerecoveryinthewirelesscommunicationsinfrastructuremarket.

ForourjustcompletedFY,revenuetotaled$.billion.Withindustrialapplicationsrepresentingthelargestportionat$.billionor%ofsales.Thebalanceofrevenuefortheyearwasaboutevenlydistributedacrossconsumer,communications,andautomotiveapplications.

Duringthefourthquarter,continuedstrengthinconsumerportabledevicesresultedin$millionofconsumerrevenue,whichwasasequentialincreaseof%.Here,ourprecisiontechnologyplatformsarebeingleveragedtodeliverhighlyinnovativeuserexperiences,andaredrivingverystrongROIforADI'sR&Dinvestments.

Revenuefromcommunicationsinfrastructurecustomersrepresented%ofrevenue,andincreased%sequentiallyinthefourthquarterwhichwasaheadofexpectations.Wirelineapplicationsdecreasedsequentially,whilethecombinationofinventoryreplenishmentandimprovingwirelessCapExspenddroveourstrongwirelessinfrastructure'ssequentialrevenueperformance.AscustomerscontinuedtodeployourhighlyinnovativemicrowaveandRFsolutions.

Despitethisneartermrebound,wirelessbasestationdeploymentsarewellbelowpriorpeaks.AndI'dsaythesameistrueforADI'swirelessinfrastructuresales.

Duringthefourthquarter,ourbroadandhighlydiversifiedindustrialendmarketdecreased%sequentially,whichwasinlinewithseasonalpatterns.Alloftheindustrialsubsegmentswithintheindustrialbusinessdeclinedsequentially,withtheexceptionofaerospaceanddefensewhichwasstabletothepriorquarter.

Asyouknow,theindustrialmarketisourmostdiversecustomerbase.Itspansmanydifferentsub




segments.Itrequiresourhighestperformancetechnology,asyouwellknow,italsosupportsverylonglifecyclesandearnsabovecorporateaveragegrossmargins.

Duringthefourthquarter,ourautomotivebusinesshad%ofsalesthatperformedinlinewithexpectations,andwasstabletothepriorquarter.Whileneartermdemand,webelieve,isbeingimpactedbylowerthananticipatedsalesofpremiumvehiclesinChina,premiumautomotivesupplierscontinuetoincorporateADI'shighperformancetechnologiesinapplicationssuchasradar-basedadvanceddriversystemsystemsandpowertrainefficiencysystems.Whichgrew%and%respectivelyduringtheFY.

Automotiverevenuefortheyeartotaled$million,growingata%revenueCAGRoverthepastfiveyears.Whichisinfactthreetimestherateofvehicleunitgrowthoverthisperiod.Sointotal,ADI'sFYrevenueincreased%fromtheprioryear,andtotaled$.billion.

SonowI'dliketoturnthecallovertoDavefordetailsofourfinancialperformanceinthefourthquarterandinFY.Withtheexceptionofrevenueandotherexpense,Dave'scommentsinfourthquarterandFYP&Llineitems,freecashflowandfreecashflowmarginwillexcludespecialitems.Whichintheaggregatetotaled$millionforthequarter,and$millionrespectivelyfortheyear.

Whencomparingourfourthquarterandfull-yearperformancetoourhistoricalperformance,specialitemsarealsoexcludedfrompriorquarterandyear-over-yearresults.Andreconciliationsofthesenon-GAAPmeasurestotheircomparableGAAPmeasuresareincludedonScheduleEandScheduleFintoday'searningsrelease.Sowiththat,Dave,I'llturnitovertoyou.

DaveZinsner (CFO):

Thanks,Ali.Goodmorning,everyone,andthankyouforjoiningus.

ThefourthquarterwasonceagainaverystrongandprofitablequarterforADI.Andwesetrecordsforquarterlyrevenue,earningspershareandcashflowgeneration.

Revenuethisquarterincreasedtoarecord$million,anddilutedearningspersharewas$..Withbothresultsabovethehighendofourguidance.Grossmarginsthisquarterwere.%,whichwasinlinewithourguidanceanddownbasispointsfromthepriorquarter,primarilyduetomix.

Daysofinventoryinthefourthquarterdecreasedtodaysfromthepriorquarter'sdays.Primarilyonhigherrevenue,anddollarsofinventorydecreased$millionoverthepriorquarter.

Weeksofinventoryindistributionwereapproximately.weeks,whichwasconsistentwiththepriorquarter.Totalendcustomerordersdecreasedinthefourthquarterascomparedtothethird,whichisquitetypicalinadvanceofaseasonallyslowfirstquarter.Andourbook-to-billwasbelow.

Operatingexpensesinthefourthquarterincreased%sequentially,laggingwellbehindthe%sequentialincreaseinrevenue.Aswecontinuedtomanageoperatingcostsverytightly,allowingustogainmoreoperatingleverageinourmodel.Asapercentofsales,operatingexpensesinthefourthquarterdeclinedoverbasispointscomparedtothepriorquarter,anddeclinedoverbasispointscomparedtothesameperiodayearago.

Operatingprofitsbeforetaxincreasedto$millionor.%ofsales.Whichisbasispointshighercomparedtothepriorquarter,andbasispointshigherthanthesamequarterintheprioryear.Otherexpenseinthefourthquarterwasapproximately$million,andrepresentedthenetinterestexpenseonourdebt.

Ourannualtaxratewaslowerthantheratewehadanticipatedattheendofourthirdquarter.Asaresult,wetruedupourtaxrateinthefourthquarterofFY,whichhadtheeffectofincreasingthefourthquarterEPSby$.pershare.Evenwhenexcludingthepositiveimpactfromthetaxadjustment,diluted




earningspersharegrew%sequentiallyonthe%increaseinrevenue,andwasagainabovethehighendofourguidance.

Cashflowinthefourthquarterwasverystrong.ExcludingaspecialpaymentassociatedwiththeconversionofourIrishpensionplan,ADIgenerated$millionor%ofsalesinoperatingcashflow,andCapExwas$million.Resultinginfreecashflowof$millionor%ofrevenue.FYcapitalspendingwas$million,andourplanforisforcapitalspendingtobebetween$millionand$million.

Attheendofthefourthquarter,ourcashandshort-terminvestmentbalancewas$billion,withapproximately$millionavailabledomestically.Wehadapproximately$millionindebtoutstanding,whichresultedinanetcashpositionof$.billion.

Duringthequarter,wereturned$milliontoourshareholdersintheformofdividendsandsharerepurchases.Whichincludedhighersharebuybackactivityof$million,asourbuybackprogramrespondedtothevolatilityinourstockprice.

OnNovember,,ourBoardofDirectorsdeclaredacashdividendof$.peroutstandingshareofcommonstock.ThisdividendwillbepaidonDecembertoallshareholdersofrecordatthecloseofbusinessonDecember.

Nowletmetakeamomenttotalkaboutourperformancein.Revenuesof$.billionincreased%overtheprioryear,andnon-GAAPdilutedearningspershareincreased%to$..

Ourcashflowgenerationwasstrongduringtheyear.ExcludingthepreviouslymentionedIrishpensionplan,operatingcashflowswere%ofsalesorover$billion,andfreecashflowwas%ofsalesor$millionfortheyear.

Duringtheyear,wereturned$milliontoshareholdersindividendsandsharerepurchases.Wealsoincreasedourdividendby%inFY,whichwasourthdividendincreaseinthelastyears.

Alltold,ADIhadaverygoodfourthquarterandFY.Ourfinancialmodelconvertedtoplinegrowthintoverystrongearningsgrowth,andwecontinuedtogeneratestrongcashflowswhileenhancingshareholderreturns.

Sonowtoouroutlookforthefirstquarter.Which,withtheexceptionofrevenueexpectations,isonanon-GAAPbasis,andexcludesspecialitemsthatareoutlinedintoday'srelease.

Ourcurrentexpectationsforthefirstquarterofisforrevenuetobeintherangeof$millionto$million.Whichwouldrepresentasequentialrevenuedeclineofapproximately%to%.Itisimportanttonotethatexcludingconsumer,ADIrevenuesatthemidpointofthisrangeareexpectedtodeclinesequentiallyatamidsingledigitratewhichisinlinewithseasonaltrends.

Themostsignificantsequentialrevenuedecreaseisexpectedtobeinourconsumerbusiness.Whichisseasonallydowninthefirstquarter,butwilllikelyexhibitmorepronouncedseasonalityafteraverystrongfourthquarterinwhichitgrew%sequentially.Intheindustrialandautomotivemarkets,wealsobelievethatseasonaltrendswilllargelyprevail.

Ourcommunicationsinfrastructurebusinessisexpectedtoremainrelativelystabletofourthquarterlevels.Aheadofseasonalpatterns,onacontinuationofthemodestbutsteadyrecoveryinthismarket.

Themidpointofourguidancerangerepresentsanincreaseof%yearoveryear.Andwouldmarktheninthconsecutivequarterofyear-over-yearrevenueincreasesforADI,whichwouldbequiteagoodachievement.




Givenourplanforlowersequentialrevenueandasistypicalinourfirstfiscalquarter,wearereducingproductionlevelsinthefirstquartertoapproximately%fromtheircurrentmid%level.Asaresult,weexpectthefirstquarterofgrossmarginstobeapproximately.%.Byremainingdisciplinedonourproductionlevels,webelieveinventorieswillbewellpositionedtosupportstrongleverageonceweresumesequentialrevenuegrowth.

Weexpectoperatingexpensesinthefirstquartertobebetween$millionand$million,whichwouldrepresentasequentialdeclineofapproximately%.We'replanningforourtaxratetobeapproximately%inthefirstquarter,whichisalsoourplannednon-GAAPtaxrateforFY.

Intotal,excludingspecialitems,weexpectdilutedearningspershareinthefirstquartertobebetween$.and$..Atthemidpointofthisrange,dilutedearningspershareisexpectedtogrow%yearoveryear.Andthiswouldrepresentthethconsecutivequarterofyear-over-yearearnings-per-sharegrowthforADI,whichwouldalsobeaverygoodresult.

Webelievethatourfinancialresultsareagoodproofpointthatourstrategytofocusonsustainableinnovationacrossdiverseapplicationsandmarketsisworking.Andwiththat,I'llturnitovertoVince.

VincentRoche,AnalogDevicesIncorporated-CEO

Thankyou,Dave,andgoodmorning,everyone.AsDaveandAlihavehighlighted,FYwasaverygoodyearforADIintermsofourfinancialperformance.

Ourstrategy,whichemphasizestechnologyinnovationandplatformreuseacrossthediversityofapplications,proveditselfonceagain.Thuseventhoughtheuncertainmacroeconomyimpactedindustrialandautomotiveandcyclicalheadwindsreducedcommunicationsinfrastructuresales,theseweremorethanoffsetbysignificantuptakeofoursignalprocessingtechnologyinportableconsumerdevices.

Itwasalsoanexcellentyearintermsofkeyaccomplishments.In,wesuccessfullyintegratedHittite,andexpandedavailableopportunitiesthatwebelievewilldeliverstrongrevenuesynergiesstartingin.Ourintegrationteamsandprocessesarefinallytuned,andhavesuccessfullyachievedourcostsynergytargetswhichareexpectedtoacceleratefurtherin.

Duringtheyear,wecontinuedtoalignourinvestmentstocriticalstrategicpriorities.Streamliningourmanagementstructure,whilemakinginvestmentstosupportourfuturegrowth.Butaswetakestockattheendofthisfiscalyear,Ithinkit'simportanttolookatourpastperformanceoveralongerperiod,andprovideinvestorssomecontextonwherewehavecomefromandwherewewanttotakeourCompany.

Overthelastthreeyears,despiteanunevenmacroeconomicbackdrop,wehavegrownourrevenueatan%annualizedgrowthrate.Andwehaveconvertedthistoplinegrowthinto%dilutedearnings-per-sharegrowth.We'vealsobeencommittedtoreturningcashtoourinvestors.

Overthelastthreeyears,wehavegrownourdividendata%annualizedratewhilereturning$billiontoshareholdersindividendsandsharebuybacks.AndourannualizedTSRoverthisperiodis%,whichisinfacthigherthantheS&Preturnoverthisperiod.

AsDavementioned,ADI'sFYdilutedearningspersharewere$.,anditisourgoaltoincreaseournon-GAAPearningspersharetoupto$byFY.AndIthinkthisisalsoanopportunetimetopointoutthataswestandtoday,weareinfactaheadofthisscheduleinreachingthisgoal.

We'vealsoinvestedandcontinuetoinvestinfuturegrowthopportunities.Overthepastthreeyears,we'veinvestedover$billioninfuturegrowthinitiativesthroughR&Dandthedayandcapitaladditions.Thesearesignificantinvestmentsthatwebelievehavebeenmadeattherighttimeinour




Company'shistory,andholdusingoodsteadforthecomingopportunitiesthatwebelievewilldriveourfuturegrowth.

Overourfirstyears,wehavecreatedatremendousmarketsharepositioninthefoundationaltechnologiesthatformvirtualbridgesbetweenthephysicalanddigitalworlds.Whencustomersneedtoreliablysense,measure,interpretandconnectphysical,chemicalandbiologicalphenomenontocomputationaldomain,ADIhasbecometheirgo-tosupplier.Itisourviewthatastheworldbecomesincreasinglyconnectedandmachinesbecomemoreautonomous,thedemandformoreandmorevirtualbridgesisquitelikelytoincrease,andthistrendclearlyplaystoourcorecapabilities.

Inourterminology,webelievethattheinformationandcommunicationstechnologysectorhasentereditsthirdwave.Thefirsttwowavesweredominatedbybigiron,personalcomputing,mobilityandconnectivity.Variousmonikersarebeingappliedtothethirdwave,suchastheinternet-of-things,industrial.andsoon.

Whateveritscalled,it'sgoingtobeaboutthepervasiveusofartificialsensoryandcomputingpowerforpeopleandmachinestosee,tohear,tofeel,andsoonthroughoutthephysicalspace.Asthisthirdwavebeginstotakeshape,itiscreatinggrowthopportunitiesforADIthatweexpectwillbebeyondthoseachievedinthepriortwowaves.

ADI'syearsofsignalprocessingleadershipisatthecenterofthisthirdwave.Withthecombinationofthecloudandbigdata,wecanenableareal-timeunderstandingofwhat'sgoingoninourworldsothatwecanact,reactandpredictinhighvalueapplications.Inareassuchashealthcare,industrialandautomotiveapplications,forexample.

Infact,existingandnewcustomersareinvitingADItohelpthemtobuildevenmorevirtualbridgestoenablethemtounlockthelatentvalueandcreatepotentialnewrevenuestreams.Forexample,manyofourindustrialcustomerswhointhepastmayhaveworkedwithustocontrolthemostvaluableenginesandindustrialmachinesaretodaylookingtomassivelyinstrumentthoseverysamemachines.Andcapturethevaluecreatedbythedatatheygenerate.

Thevalueoftheinformationgenerated,infact,hasthepotentialtobecomeevengreaterthanthevalueoftheactualthingitisconnectedto.Andthisisveryexcitingforourcustomers,andinturn,it'salsoveryexcitingforushereatADI.

Wearetheacknowledgedmarketleaderinconvertersandamplifiers.Twoofthemostcriticaltechnologiesthatbridgethephysicalanddigitalworlds.Andwe'vealsofocusedsignificanttechnicaltalentovermanyyearsonthedevelopmentofultralowpowersensorsandmicrocontrollersthatareoptimizedforreliable,power-efficientIOTsolutions.

Equallyasimportant,ourrecentacquisitionofHittitemeansthatADIalsopossessesthefullrangeofactivitysolutionsnecessarytotransmitdatatothecloud.Foranalysisoftrendsandpatterns,andthenbacktothenodetobeactedupon.

We'vemadesteadyprogressthisyearinapplyingoursilicontechnologyandalgorithmheritage.Andstrengthsindeepdomainatapplicationsknowledgeatthephysicaledge,tocreatecompletesensor-to-cloudsolutionsthatareefficient,secure,andreliable.ThiscreatesthepossibilityforADItonotonlycreate,butalsotocaptureadditionalvalueaswemovemoredeeplyintotheinformationspectrum.

Wewillcontinuetobuildmomentuminthesenovelgrowthapplicationsintheyearsahead.Whileinsuringthatwecontinuetostrengthenourtechnologiesandcustomerengagementsinourcorebusiness.




AtADIwe'reveryexcitedaboutapplyingourexpertisetocreatesolutionsthatsolvethemostimportantproblems.Leadingtosmartercities,smarterbuildingsandfactories,aswellastransforminghealthcare,andultimately,people'slives.

Nowthesearejustsomeofthemyriadofapplicationswithwhichwearehelpingourcustomers.OurcustomersareincreasinglyinvolvingADIearlyintheirinnovationconversations,andleveragingourcapabilitiestoarchitectsolutionstotheseverytoughchallenges.Asthethirdwavetakesroot,weexpectthatgrowthfromthesehighperformancesolutionswilldrivefuturerevenueandprofitgrowthforADI.

SobeforeIfinish,Iwouldjustliketoreiterateouroffspokenstrategicobjectives.Firstly,webelievethatinnovationdrivesbusinesssuccess.Wefocusonsizeablemarketsthatvaluetheperformancewedeliverinhighvalueareasattheintersectionofthephysicalanddigitalworlds.

Secondly,webelieveinthediversityofmarkets,applicationsandcustomers.Weplacemanymodestnewproductbetsincarefullychosenapplications,andengagedirectlywiththecustomersthatrepresentaverylargepartofourservedavailablemarket.Diversityinsuressustainabilityandresilience,andthishasbeenprovenbyourabilitytosuccessfullynavigatetheextraordinarytransitionsinthesemiconductorindustryoverthepastyears.

Thirdly,innovationanddiversityenableADItobuildwideandsustainableeconomicmotesthatenhanceshareholdervalue.Andofcourse,thisisallmadepossiblebythetalent,theingenuityandpassionofourglobalworkforcewhocontinuouslyraisethestandardsintechnology,customerengagement,supplychainandthemyriadofotherareasinabusinessascomplexasours.AsthemarketsweservemoveclosertoADI,Ifirmlybelieveourbestdayslieaheadofus,thankyou.


Greatthanks,Vince.ForthoselistenersinterestedlearningmoreaboutADIintheIOTspace,werecentlywebcasta-minutepresentationthatactuallygoesintothistopicinmuchgreaterdetail,andyoucanfindallthatinformationonourIRpage.

Solet'stalkquicklyabouthowweruntheQ&Asession.I'mgoingtoaskyoulimityourselftoonequestion.We'regoingtorunthecalluntil,soafteryouaskyourprimaryquestionandifyoustillwanttoaskafollowon,youshouldrequeue.

Andaswesayeachquarter,werunthecallinthisformatinthespiritoffairnesssothatallcallersgetachancetoaskatleastoneoftheirquestions.Sowiththat,operator,let'sgototheQ&A.

QUESTIONS&ANSWERS

RETURNTOTOP

Operator :

(OperatorInstructions)

OurfirstquestioncomesfromRamitShahwithNomuraSecurities.

RomitShah (Analyst-NomuraSecuritiesCo.,Ltd.):

Yes,thankyou.Dave,justhistorically,Aprilhasbeenoneofyourbetterperiodsintheyear.Ithinkonaverageprobablyupmidtohighsingledigits.Butnowthatconsumerissuchamoresignificantportionofthebusiness,howdoyouthinkaboutseasonalityintheAprilperiod?

DaveZinsner (CFO):




Thanks,Romit.Ithinkyou'rerightinthatobviouslywhenwearemoreconcentratedinindustrial,wewouldhaveseenamuchbiggerrampseasonallyinthesecondquarter.Weexpecttoseethatseasonalityinthesecondquarterforindustrial,butconsumernowisalargerportionofourrevenueisabitofawildcard.Ithinkthatthatquarterisgenerallyseasonallydownalittlebit.

Obviously,wedon'thaveanyvisibilityintothequarteryet.Butthatwouldmutealittlebitthesequentialincreasethatyouwouldtypicallyseeinthesecondquarter.Butasyouknow,thisisthesemiconductorbusinessandyouneverreallyknowhowthingswillpanoutuntilyou'rereallyupontopofthatquarterandcanmakeabetterdetermination.

RomitShah (Analyst-NomuraSecuritiesCo.,Ltd.):

Thankyou.

DaveZinsner (CFO):

Sure.

Operator :

OurnextquestioncomesfromChrisDanelywithCitigroup.

ChrisDanely(Analyst-Citigroup):

Nicequarter,IguessyoucangotellTomBradytoeatyourheartout.SoifwelookwhathappenedinOctoberandJanuary,alittlemorerevenuevolatilitythanhistoricalatADI.

SoIguesstocontinueonRomit'squestion,howdowethinkaboutseasonalityin?Andwiththat$millionquarterlyrevenuebogey,whatgivesyouconfidenceyoucanexceed$millionineithertheJulyortheOctoberquarterin?Maybejusttalkaboutjustvisibilityontheconsumerfront?

DaveZinsner (CFO):

Yes,we'llhaveobviouslyalargerconsumerbusiness.Generallythesecondhalfoftheyearismuchstrongerthanthefirsthalfoftheyear,atleastfromafiscalyearbasisforus.Giventhatthat'sgenerallywhennewproductlauncheshappen,Christmasbuildshappen,andsoforth,sothatwilldefinitelychangetheseasonalityabitfortheoverallCompany.

MyguessisthattypicalseasonalityforADIisgoingtoberelativelysimilarsequentialincreaseseveryquarterfordifferentreasons.Obviously,thesecondquarterwouldbemoreofanindustrialstory.Thethirdandfourthquarterarelikelytobemoreofaconsumerstory.

Whatwasyourotherquestion,Chris?Imissedit.


Justtalkaboutvisibilityontheconsumerfront.Howyoufeelaboutmaintainingmarketsharethereinthesecondhalfoftheyear?Thatwouldsucceed$millioninrevenue.

DaveZinsner (CFO):

Wellagain,wehaverealconfidenceinrevenuewhenweactuallyhaveorders,andwehaveordersusuallyoutaboutthroughthefollowingquarter.Soit'sdifficultformetosaywhat'sgoingtohappenoverthenextfewquarters.ButIwouldsayourpositionwithallofourlargecustomersisverystrong,andweexpecttohaveastrongpositionwithallofthosecustomersoutforthedistantfuture.





Thanks.

Operator :

YournextquestioncomesfromJohnPitzerwithCreditSuisse.

JohnPitzer (Analyst-CreditSuisse):

Congratulationsonthestrongresultsforthefiscalyear.Iguessanotherquestionontheconsumerside.Ifyoulookattherevenuerampoverthelastseveralquarters,thevastmajorityofthathasbeendrivenbyforcetouch.

Youguysarearelativelynewsupplierforanewapplicationthatthecustomerfeelsisimportantenoughthattheyactuallyhighlightitintheiradvertising.Andweknowthere'sbeensomeyieldissuesonthemoduleawayfromyou.Andifwetrytobackintoyourrevenuecomingfromforcetouchandtrytoequatethattoaunitnumberforyourcustomer,itdoesappearthatyou'reovershipping.

So,Dave,I'mwonderingifyoucouldhelpusunderstand.WhenyoulookattheJanuaryquarter,doyouthinkyouareovershippingtoyourcustomerrightnow?AndwhenyoulookattheguidanceforconsumerintheJanuaryquarter,doyougetmostofthatbackinJanuarysoyoufeelmorecomfortablethatyou'renotovershippingthedemandrightnow?

DaveZinsner (CFO):

Wellletmestartbysayingthatobviously,wedon'ttalkaboutindividualproductsandindividualcustomers.Ourcustomersdon'tappreciatethat,andit'sreallyuptothemtostarttalkingaboutwhattheirendmarketsaredoingandtheirapplicationsaredoing.ButI'lltalkspecificallyaboutourconsumerbusiness.

Clearly,thefirstorthebackhalfofthisyearhadaverygoodramp,andthatwasdrivennotbyonesingleproductduequitehonestlynotbyonesinglecustomer.Wedidannounceinour-K,wehada%customerfortheyear.Soobviously--andthat'sunique,soobviouslywedidhaveonecustomerthatdidquitewell.Buttherewerealotofthingsthatdidverywellforusintheconsumerbusinessinthebackhalfoftheyear,sothat'sonethingIthinkeveryoneshouldkeepinmind.

Clearly,whenyouhaveabigramplikewedidinthefourthquarterandwetelegraphadecentsequentialdeclineinthefirstquarter,thatwouldindicatesomethingisgoingon.AndIthinkit'ssafetoassumethatthereprobablywasinventorythatbuiltinthefourthquarterforreasonsthatarespecifictothosecustomersandhowtheywanttomanagetheirsupplychainsandsoforth.

ButIdon'tthinkitwasanythingoutoftheordinary.Ithinkit'srelativelytypicalforhowthosecustomersmanagetheirinventory.

Andasisthefirstquarterdecline,whichIthinkstartstodigestthatinventory.Idon'tknowhowlongittakesforthatwholethingtosmoothout,aconsumerbusinessofthissize,particularlydrivenoffofportablesisabitdifferentforusthanwehavehistoricallyhadapositionin.Sowe'llhavetoseehowitgoes.

Butmyguessisthatitpicksbackupinthethirdandfourthquarter,anddoesquitewell.Andallofthatstuffwillmakesensetoallofyouguysthattrytobackintoendconsumptionandsoforth.

JohnPitzer (Analyst-CreditSuisse):




Helpful,guys.Thankyou.

Operator :

YournextquestioncomesfromCraigElliswithB.Riley.

CraigEllis (Analyst-B.Riley&Co.):

Thanksfortakingthequestion,guys,andcongratulationsonthestrongresults.Dave,onthegrossmarginoutlookwiththesequentialdecrease.Canyoujustframeupsomeofthegivesandtakes?

Becauseitwouldseemlikemixwouldbeatailwindtogrossmargin,butvolumelookslikeaheadwind.Whatwasutilizationinthequarter,andwheredoyouthinkitisintheoutlook?AndwhatdoesyourabilitytocontrolinventorymeanforthegrossmargintrajectoryaswelookouttotheAprilquarterandbeyond?Thankyou.

DaveZinsner (CFO):

Yes,soIthinkItalkedaboututilizationwasin--helpmeoutAli.


Utilizationwasinthemid%s,butwe'rebringingitdowntoabout%inthefirstquarter.

DaveZinsner (CFO):

Right.Sothatobviouslywilldrivemostofthegrossmargindecline.Thereisabitofmixalso,asyoupointout,thatisdrivingalittlebitofthegrossmargins.

Iwouldsaythatthemixdecline,fourthquartertofirstquarter,hasalittlebitmoretodowith,believeitornot,mixwithintheindustrialspace,notmixwithinourbroaderbusinesscategories.Sothat'swhatwilldrivethegrossmargins.

Afterthat,obviouslywe'dexpecttobebringingbackourutilization.Hopefullyseasonally,weseeastrongindustrialrampinthesecondquarterandthatwouldcertainlydrivebettervolumewithinthefactoriesandshouldgetthegrossmarginsbackuptothelevelsthatweseetoday.


OurindustrialbusinesstodayCraigisaboutoddpercentoffofitsrevenuepeakthatweachievedbackinsortofthethirdquarterofsoIthinkourgoalhereistoreallygettheinventoriesingoodshapewhichwearetryingtodointheFirstQuarterwithprettylowutilizationrates,preciselyforthatreason.TogetinventoriesingoodshapeforwhatwehopewillbeaseasonalSecondQuarterobviouslytooearlytocallthatatthisstagebutifwedoseeseasonalityintheSecondQuarterthenindustrialdoesbetterandweshouldseeprettygoodgrossmarginanddropthroughtotheearningssohopethatanswersthequestionandlet'sgettothenextcaller.

Operator :

OurnextquestioncomesfromToreSvanbergwithStifelNicolaus.

T oreSvanberg (Analyst-StifelNicolaus):

Yes,thankyou,greatresults.

Soyourbacklogisup%.IsthereanythingthatIcanreadintowiththatnumberandI'mthinking




especiallysinceyourbacklogisobviouslyforseveralmonthsfurtheroutaswesortoftaketheconsumeroutofthatequation,doesthatnumbersortofsignalthatyourindustrialandcommunicationsbusinessisstrengthening?

DaveZinsner (CFO):

WellIthinkmostofitisIthinkatthemidpointofourguidancewe'relookingat%year-over-year,becauseifI'mnotmistaken,thebacklogthatyou'retalkingaboutintheKisacomparisonofthebacklogcomingintolastyearversusthebacklogcomingintothisyearandwearepredictingrevenuetobeup%soit'snotsurprisingthatbacklogwouldbeup.TheotherthingisIthinkinsomecases,theconsumerbusinesswhichwillbeupyear-over-yearprobablyprettymeaningfullygivesusalittlebitmorevisibilitythansomeoftheotherMarketsandsofromamixperspectivethatactuallyhelpsonthevisibilityintermsofbacklogbutitreallyisn'textendingthevisibilityatall.It'sstillallshippablewithinthequarterandforthemostpartandreallydoesn'tinfluencehowwewouldthinkthattheSecondQuarterwouldpanout.


Letmejustgiveyoualittlebitofcoloryoumentionedspecificallyindustrialandcommunicationsinfrastructuresoletmegiveyoualittlebitofcoloraroundthebookingsinthequarter.Forindustrial,wesawAugustquiteweakasitgenerallyisseasonallyinthatmonth.Septemberwasactuallyquitestablewhichisabitofananomalyintheindustrialbusiness.GenerallyspeakingSeptembercomesbackquitenicelyandthistimearoundwasstabletoAugustlevelsandIthinkifyourememberbacktherewasprettyscreamingmacroheadlinesatthatpointintime.

Interestinglythen,theOctobermonthwasactuallyquitestrongfortheindustrialbusinessandNovemberseemstohaveleveledoffalittlebitandIthinkwe'refeelingprettygoodabouttheenvironmentgenerallythinkingaboutaprettyseasonalsortofenvironmentfortheFirstQuarterforindustrial.Wehaven'tmentionedityetbuttheweeksofinventoryindistributionweresevenandahalfweeksconsistentwiththepriorquarter.

Ourdeferredgrossrevenuebalancewhichwasaprettygoodproxyforinventoryinthechannelofrevenue;dollarswasdown%inthequarter.SoIthinkit'sallsortofhangingtogetherthereasfaraswecantellforthenextquarterandthatdefinitelyisinourguidance.Onthecommunicationsinfrastructuresideitwasup%sequentiallythisquarterintermsofrevenue.

Wirelinewasdownsomewhatsoinitlyindicationwasthatwirelessactuallydidbetterthanthe%whichitinfactdidandmostofthatwetoldyoulastquarterwefeltlikewewereundershippingindemandinthatspacealotofthatintermsofrevenueperformancewasaresultofinventorycomingbackinlinewithdemandyou'restartingtoseegoodbasestationdeploymentactivityalthoughit'sobviouslyearlytocallbutintermsoftheorderflowsandcolumnsduringthequarter,weactuallysawbetterorderfloweverymonthofthequarterinthecompsspacesothat'swhereweareat.Ihopethatansweredthequestionandlet'sgettoournextcaller.

T oreSvanberg (Analyst-StifelNicolaus):

Veryhelpful,thankyou.


Great.

Operator :

OurnextquestionisfromCraigHettenbachwithMorganStanley.




CraigHettenbach (Analyst-MorganStanley):

Yesthanks.Ijustwantedtodiscussyourapproachtocapitalallocation.IfIlookyou'vehadahealthymixcertainlyafocusondividendincreases,opportunisticM&A.OntheM&Afrontespeciallyastheindustryconsolidatesjusthowyouapproachthatrelativetothereturnofcashandanytypeofmetricsyou'remostfocusedon.

DaveZinsner (CFO):

Thanks,Craig.Soobviouslywearefocusedonthedividendandwementionedinthepreparedremarkswewithwouldliketoseethatcontinuallyincreasesandwewouldlikeincreasesinthelastyearssowedo,doopportunisticbuybacks.Wethinksomeofourshareholdersdofavorthebuybackoratleastappreciatethebuybackandsowehavemaintainedarelativelyconsistentapproach.ItdoesintendtobuybackmorewhenthestockisweakerwhichIthinkisprovidesagoodreturnoninvestmentfortheshareholdersandlastlyasyoupointoutCraigwedohaveanM&Aapproach.

WehaveaveryhighbarintermsofM&A.Wedon'twecertainlydon'tlookorkickthetiresonalotofdealswepicktheonesthatareveryhighquailanditreallystartswithcompaniesthathaveahighdegreeofinnovationandwherethatinnovationisIguesscomplimentarytoourowntechnologywithourexistingcustomerbase,andsoyouknowwewilldodealsfromtimetotime.Theygenerallywillbeinthehit-Itekindofsizerangeorprobablylowerinsomecases.We'reactivelylookingatthings.

Whenyoulookortendtolookatbusinessesthatdohaveahighdegreeofinnovation,itusuallycomeswithreallygoodgrossmargins,verygoodoperatingmargins,verygoodreturnonR&Dinvestmentssofromafinancialperspectivethosearesomewhatoftheoutputsasopposedtotheinputsbutthosedotendtogohandinglovewithreallyinnovativecompanies.

CraigHettenbach (Analyst-MorganStanley):

Gotit.Thanksforthecolor,Dave.

DaveZinsner (CFO):

Sure.

Operator :

OurnextquestioncomesfromAmitDaryananiwithRBC.

AmitDaryanani(Analyst-RBC):

Thanksalotfortakingmyquestionguys.IguessoneofthebiggestthingsthatpeopletendtotalkaboutyourecentlywasjusttheconcentrationissuewithyourlargestcustomeratthispointsomaybeifyoucouldjusttalkaboutthesolutionortheproducttoseehowyourlargestcustomerthepotentialtoexpandthatintoothersolutionsintootherVectorsbethatconsumerdifferentsectorsandwouldyoueverlookatM&Aasawaytodiversifyconservation?


Actually,we'veneverbeenmorediversifiedasaCompany.Wehavemoreproductsintheportfoliothanwe'veeverhad.Weaddressmorecustomersthanwe'veeveraddressed.ThereactuallyisaCompanyinveryverygoodpositiononthatfront.

Withregardtotheconsumermarketingeneralwehaveverystrongleveragefromourcoretechnologyplatforms,intheconsumerbusinessittendstobemoreofaprecisiondevelopmentProductDevelopment




effortsowegetverystrongleverageforexample,fromourindustrialproductbasewhichtendstobeprecisionorientedinherentlysowe'relookingalwaysforareasinnovationcomesfirstforus,webuildthecoretechnologybringittoasmanyapplicationsaswepossiblycanandintheconsumerareawe'repickingouttheveryveryhighestlevelchallengesthatwecanpossiblyaddressandwebelievethoseproblemsaresusunableovertime.

Ofcoursetimewilltellwhetherthat'swellfoundedornotbutwebelievewe'reinavery,verygoodpositionandasDavementionedearlier,evenwithineachcustomer,welookfordiversificationofapplicationsandproductsandtechnologyandthatisthecasewe'replayingeverywhereintheconsumerareaaswell.

DaveZinsner (CFO):

I'djustadd-ontheM&Afrontwedon'tdrivethatoffadiversificationapproachbecausewe'reconcentratedwithonecustomer.Wedopickusuallycompaniesthathavealotofdiversityandbyvirtueofthatwedogetalotofdiversitybutourfirstandforemostobjectiveistofindreallygreattechnologythatcomplimentsourexistingtechnology

AmitDaryanani(Analyst-RBC):

Perfectthanksandcongratsonthequarterguys.

DaveZinsner (CFO):

Thankyou.

Operator :

OurnextquestioncomesfromChrisCasowithSusquehannaFinancial.

ChrisCaso (Analyst-SusquehannaFinancial):

Yesthankyougoodmorning.

Questiononthecompsspaceandsomeofyourfollow-uponsomeofyourcommentsthere.Iguessparticularlywithinthewirelesspartofthatspace,doyouthinktheexcessinventorywithinthatspacehasbeendigestedatthispointsothatgoingforwardthegrowthinthatsegmentshouldbeproportionaltothegrowthinbasestationdeployamsandobviouslyunderstandthosebasestationdeployamsarewellbelowtheirpeerpeak.


Christhanksforthequestion.

Youknowobviously,neversaynever,right?It'salumpymarketforareasonbutoursensewhenwelookattheorderflowswhenwetalktoourcustomersisthatthatperiodoftimewheretheinventoriesweremassivelydrawndownisbehindussoobviouslywecan'tspeakforothercompanies.Andothersuppliersbutwhatwecantellforourproduct,whatwe'reshippingintothespaceatthecurrentmomentisprettywellbalancedwithindemandinthisspaceandfranklywhenwelookedattheorderflowsandthinkingabouttheguidancefortheFirstQuarter;generallyspeakingtheFirstQuarterisdowninsortofhighsingledigitssequentiallyforthecalmspaceandthistimeifyoubackintoguideandwe'reimplyingitwillbefairlystable.

Soifyoulookattheregionalperspective,NorthAmericahasbeenprettystable.ChinanowhasstartedtodeployTDNFD,againit'sslowbutithasstartedsowesawsomeimpactandgoodbenefitforthatinour




quarter.AndifyoulookatemergingregionstheycontinuetodeploywithparticularlyagoodquarterinIndia.SoIthinkthingsaremovingandslowandsteadybutatleasttheyaregoingintherightdirection.

ChrisCaso (Analyst-SusquehannaFinancial):

Thankyou.


Sure.

Operator :

OurnextquestionisfromWilliamSteinwithSunTrust.

WilliamStein (Analyst-SunTrust):

Thankyoufortakingmyquestion.

Vince,youhighlightedwhatsoundslikewhatcouldbesortofavirtueuscyclebetweenyourCOMinfrastructuremarketononehandandtheotherthreeendMarketsandIguessitsortofraisesaquestionastowhichoftheseyouexpecttogrowfastestasyouenterthisenvironmentorthisthenyoudescribedasthethirdwave.AndIalsowonderwhetherconsolidationplaysintothatthinkingandwhetherM&Asortofplaysintothethinkingofwheretopositionrelativetothecycleofdatadevelopment?

VincentRoche (CEO):

Greatquestion.Sowehavealongtermmodel.ForgrowthwebelievetheMarketsthatifyoulikeleveragemostintermsofdrivinggrowthareattheupperendoftwotothreetimesGDPmodeltheautomotiveandcommunicationsinfrastructureareasandIstillbelievethattobetrue.WeputouttargetsatleastattheAnalystdayandIthinkthosetargetsarestillvalidthere.Obviouslyconsumerisgoingtobeattheupperendofthataswell.

IthinkifwecanoverthelongtermandwehavecertainlyforthelastthreeyearsbeenabletodriveourindustrialbusinessatacoupleoftimesGDPlevel,wewouldbeinveryverygoodSteadwellintothefutureandwhatI'vegivenyouintermsofthosetargetsisreallyaboutwhatwedoorganicallyratherthanwhetherwehavetobuymoreHeft.

AsDavehasindicated,we'realwayslookingfortechnologiesthatmakemoreofanimpacttotheoverallsolutionwedelivertoourcustomersandwe'retakingmoreofastrategicviewratherthanafinancialoroperatingviewofM&Asoit'smoreaboutfindingthoseboltintechnologiesthatmakeADImorerelevantandmakeourtechnologyproductofferingmorepowerfulintheeyesofthecustomerbutgenerallyspeakingwe'reinavery,verygoodpositiontoorganicallytakecareofourfuture.

WilliamSteinThankyou.

VincentRoche (CEO):

ThanksWill.Nextquestionplease.

Operator :

OurnextquestioncomesfromDavidWongwithWellsFargo.

DavidWong (Analyst-WellsFargo):




Thanksverymuch.Whenwelookatyourindustrialandcommunicationssegmentsandyear-over-yearcomparison,dothesenumbersreflecttheendMarketsoraretheysuppressedbyrationalizationofproductorcustomertransactionfollowingthehit-Iteacquisition?

DaveZinsner (CFO):

Wellobviously,intheFirstQuarterof,wehadhit-Ite,soit'sadirectcomparisonsoIguessinthecommunicationsbusiness,wearecertainlyoperatingatwhatisalowerlevelthanwhatwethinkisthenormalbuildoutofbasestationsonayearonyearbasissoit'simpactedbythereductioninspendinginwe'relessinfrastructureinacoupledifferentMarkets.

Granteditsrecoveredfromitstroughbutnotcertainlywhatwouldbeconsiderednormalizedlevels.Ithinkintheindustrialbusiness,itwasarelativelyonayear-over-yearbasisarelativelymodestbutkindofwithinwhatGDPlikegrowthratehasbeensoIwouldsaythatprobablyreflectskindofnormalindemandinthatmarket.

VincentRoche (CEO):

Iwillsayjusttoaddalittlemorecolor.Wehadarecordquarterwithregardtothehit-iteportfolioinquarterjustdoneandgivenarelativelydepressedcommunicationsmarketthoughtherewassomerecovery,whatI'vebeenmostpleasedaboutisthediversityoftheapplicationswe'reabletotargetoutsideofthecommunicationsinfrastructurebusinesswiththatportfolio.

DavidWong (Analyst-WellsFargo):

Great,thanks.

DaveZinsner (CFO):

ThanksDavid

Operator :

OurnextquestionisfromHarlanSurwithJPMorgan.

HarlanSur (Analyst-JPMorgan):

Higoodmorning.Thanksandcongratulationsonthesolidquarterlyexecution.

IthinkAlisaidinthepreparedremarksthattheCAGRhadhasbeengrowingabout%overthepastfewyearsprettysolidperformance.That'sdeceleratedabittoflatgrowthyearinfiscal.LookslikegiventheguidancearoundQthat'sprobablygoingtobeflatyear-over-year,theteamhastalkedaboutabetterdesignwinintermsofdollarsconstantcaptureinwithintheautomotivesegment.

SoIguessthequestionisistheteamstillrelativelyconfidentaboutthepotentialforreaccelerationinautomotiveandthenwithsubsegmentsareyougoingtoseemoreofthegrowthisitinpowertrainandsafety,growthIndianatotapementaswell?Thankyou.


Yeahgoodquestion.

Sowe'vehadalotofinquiriesoverthelastcouplequartersaboutourperformancespecificallyintheautomotivesectorandwhatI'lltellyouisit'sreallyaTaleoftwobusinessesduring.ItwasarelativelyflatquarterandwhenyouextractIthinkI'vementionedbeforetoyouthatourmen'ssafetybusinesshashadsomenopunintendedsomespeedbumpsalongthewayhere.Andourautomotivebusiness,withthe




exceptionofmen'ssafetyactuallygrewinthehighsingledigitsyear-over-yearprimarilyintheareaslikeadvanceddriverassistance,thepredictivesafetysideofthebusinesshasgrownatastellarpacefortheCompanyoverthelastthreeorfouryears.

Ibelievethatwillbethecaseintothefutureandthepowertrainspecifically,thesensingpartofthatbusinessandthebatterymonitoringcontrolhasdonewellandwillcontinuetodowell.Infotainmentisaverydiverseareaandwetendtotargetthehighendofthatbusinesswithourdigitalsignalprocessingandourdataacquisitiontechnologyandalgorithmictechnologies.WehaveanewtechnologycalledAtoBwhichisamethodofmovingsoundthroughthecaressentially,speechandsoundinawaythatisveryefficient,veryverylowlatency,verylowweightintermsofthewiringcablesandsoon.

Andwehavealotofnewsensingtechnologycomingintoplay,anarealikeAMR,forexample,wherewearedevelopingaleadershippositionwhichwillbeawholenewcategoryinthatbusinessinthefutureascarsEelectricFridayandbecomemoreautomated.SoIthinkwhatyoucanexpectintheautomotivebusinessduringthiscomingFiscalYearisthatthefirsthalfwillbewithinseasonalpatternofthecurrentbusinesslevelbutthesecondhalfIdoexpecttopickupinthegrowthoftheoverallbusinessatthehigherendofthegrowthmodelwhichisthreetimesGDPkindoflevels.

Sowe'reconfidentgiventhealignmentbetweentheproductswehaveandcustomerprogramsthatwe'vegotandit'sanareawherewehavebeenintensivelyinvestingandincreasingtheinvestmentsoverthepastfiveyears.SoIthinkwe'llreturntoagrowthpatterntowardsthebackendofandbeyondsothat'smysensebasedoneverythingthatIknowatthispointintime.

HarlanSur (Analyst-JPMorgan):

Great,thankyouverymuchfortheinsights.


Sure.

Operator :

OurnextquestioncomesfromVivekAryawithBancofAmericaMerillLynch.

VivekArya(Analyst-BofaMerillLynch):

Thankyoufortakingmyquestionandcongratulationsonthegoodresultsandexecution.


Thankyou.

VivekArya(Analyst-BofaMerillLynch):

Ijustwantedtoclarifyonthisoverbuildversusunderbuildinconsumersowedon'tblowitoutofproportion.

SoDaveonQ,youmentionedsomeslightoverbuild.Isitpossibletoquantifythat?AndthenaswethenlookatQ,Iassumethatit'sperhapsanunderbuild.SoasyouemergefromQareyougoingtoemergewithsomesignsofshippingintoactualdemandandIknowthatit'sprobablyalittleearlybuthowdoesroughvisibilitylooklikeforQ?

Thankyou.




DaveZinsner (CFO):

Wehave,likeIsaidwe'vegotlittlevisibilityintoQanditwouldbeprematureformetoevenmentionwhichdirectionitwouldevengo.Yes,Idon'twanttoandIthinkyou'veactuallypointoutagoodpoint.Idon'twanttooveremphasizebuild.

MostofthatwebelievemostofthatshipmentswereconsumedbutwhenyouhaveaforthquartertoFirstQuartertransitionlikewe'retalkingabout,youhavetobelievethatthere'ssomekindofdigestionthathappensforalittlebitofit,whichdrivesustobelievethatonasequentialbasisconsumerisgoingtobedownandthat'swhywe'reguidingtowherewe'reguidinganditwillprobablybedownmorethanthecorporateaverage.

Outsideofthat,Ican'tgiveanymorevisibility.Obviouslythere'salotofmovingpieceswithintheconsumerbusinessandtryingtoidentifyeveryapplicationandeverycustomergoingintoandfiguringoutwhattheyarealldoingisnexttoimpossibleforus.Wegettheorders,weshipthemandweleaveittothemtofigureoutwhattodobeyondthat.


It'sprobablyagoodtimetoreemphasizedespitealltheneartermnoisethatyear-over-yearrevenuegrowthintheFirstQuarterwouldbe%withdoubledigitEPSgrowthsothanksforthequestionVivek.

We'llgettoournextcaller.

Operator :

OurnextquestionisfromSteveSmigiewithRaymondJames.

SteveSmigie (Analyst-RaymondJames):

Thanksalotguys.

Justaquickfollow-upontheoutperformanceinthequarter.Ithinkyoumentionedthatitwasduetomultipleproductsthereinconsumer.Obviouslyjustadiscussionofforcetouch.Canyoutalkaboutwhatproductsotherthanforcetouchwerepartoftheoutperformanceinthequarter?

DaveZinsner (CFO):

I'mnotevensayingthatwasareasonoftheoutperformanceinthequarter.

AllIcansay,Steve.wehaveseveralmanycustomerswithinourconsumerbusiness.Wehavelotsofcustomersintheportablesideofthebusinessandwehavealotofdifferentproductsthatgointothoseapplications.

VincentRoche (CEO):

Togiveyouasense,weagaintheproductsweshipintotheseapplicationstendtobeprecisionorientedinareaslikesensingandinaudio,andalsointheareaofimageprocessingsotherearekindofthethreecategoriesyoushouldthinkaboutwhenyouthinkofADI'spositionwithintheseportableconsumerapplications.

SteveSmigie (Analyst-RaymondJames):

Okay,great,thankyou.





ThanksSteven.

ThisisAlihere,itsays,we'rethreeminutesshortofthehour.Ithinkwe'llkeepgoingwiththequestionsbutthetimeisprobablyoverforthosewhohavere-queuedunfortunately.SoIthinklet'skeepgoingtoatleastgeteverybody'sfirstquestionsin.

We'llgettoournextcaller.

Operator :

OurnextquestionisfromC.J.MusewithEvercoreISI.

C.J.Muse (Analyst-EvercoreISI):

Goodmorningthanksforsqueezingmein.

Overalllookingforyourkindofbigpicturemacroviewhere,whatareyourthoughtsintermsofwhereweareinthecycle?Wheredoyouseepocketsofhealth/weaknessandspeakinggeographicallyandhowallofthatshapesupintermsoftherecoverypictureinthefirsthalfof?


YesI'mnotsurethereisacycleanymoreinthesemiconductorindustryandIthinkalotoftheconsolidationsomewhatinsuresthataswell.SoIthinkthere'sadecentmatchbetweensupplyanddemandrightatthispointintime.

Overtheyears,we'vealldevelopedmethodstodealwiththevolatilityandwehavealotmoretransparencynowintotheareasofsupplyanddemand.SoIthinkinsomewayswhatyoushouldbelookingatforisprobablywhatthemacroeconomicclimatedoesandwe'vestartedmessagingourgrowthtrajectoryorthealgorithmwehaveforgrowthaswellonthatbasis.SomemultiplegiventhevariousMarketsthatinwhichweplayandwhattheyarecapableofdeliveringintermsofmacrolevelgrowthandmodulatedbywherewearewithourproductsandtechnologiesanourcustomersintheseareas.

SoI'mnotsurethereisacycleinourindustryanymore.It'sprobablysafertolookatwhatthemacroenvironmentdoesinthevariousregions.

DaveZinsner (CFO):

Thanks,CJ.Let'sgettoournextcaller?

Operator :

OurnextquestioncomesfromTristanGerrawithRobertW.Baird.

T ristanGerra(Analyst-RobertW.Baird):

Tofollow-uponyourcommentaryaboutautomotive,whattypeofmarketsharepositiondoyouthinkyoucanhaveindriverassistoverthenextcoupleofyearsandonthebasisofyourdesignwinsandhowbigdoesitgetasapercentofyourautomotivemarket?

VincentRoche (CEO):

Yes,soit'sagoodquestion,Tristan.OffthetopofmyheadIdon'thavethenumbersbutthegrowthrateofouradvanceddriverassistancebusinesshasbeenoneofthestrongestprobablythestrongestgrowthelementbythewayduringcan.It'sameaningfulpartofADI'soverallautomotivebusinessmodeatthispointintime.




Wehavesomeveryexcitingnewtechnologybuiltonsomemicrowavetechnologythatwebuiltonourvery,veryadvancedtechnologyplatformthatweareabouttowillbesamplingoverthiscomingyeartoourcustomersthatwillchangethegameinradartechnologies.AndsoIthinkwhenyoulookatthatbusinessoverall,certainlysafetyisgoingtocontinuetobeaveryimportantpartgiventhemandatesandeverybodywantsmoresafety.

SoandIthinkthecapabilitiesthatwehaveastheCompanyaswellinactive,passiveandcombiningthosewithpredictiveputsusinquiteauniquepositionactuallytobeabletolookatthesafetyproblemasasystemofproblemsandtailoroursolutionstothoseneeds.

T ristanGerra(Analyst-RobertW.Baird):

Great,thankyou.

Operator :

OurnextquestioncomesfromAmbrishSrivastavawithBMO.

AmbrishSrivastava(Analyst-BMO):

Hithankyou.

DaveIhadaquestiononCapExguidanceforthefullyear.Andalsoalongthoselines,FreeCashFlowmargingiventhatahigherROIandhigheroperatingmarginbusinessisyourportionofthemix.ShouldweexpectthatFreeCashFlowmarginforfiscalshouldbehigher?Thankyou.

DaveZinsner (CFO):

Yes,we'recertainlydrivingtheFreeCashFlowtobehigher.

ThatisourgoalandthentheportionontheCapEx,we'redrivingtowards%orsoCapExasapercentofrevenue.That'sreallyourgoal.IthinkwehadaverygoodyearintermsofFreeCashFlowthisyear.

IthinkwecandobetternextyearwithalowerCapExasapercentofrevenuetohelpdrivethatalittlebitandthere'ssomethingswedidhavetobuildinventorythisyearupforsomerampsthatoccurredandsomelasttimebuildsrelatedtohit-Ite.ThoseactivitiesarebehindusintermsofbuildinginventorysoweshouldgetaprettyfavorableworkingcapitalnumberforwhichcouldhelpdriveabetterFreeCashFlownumberforaswell.


YesandifIcanjustaddquickly.

FreeCashFlowfortheyearexcludingtheone-timepensionpaymentwas%ofrevenue.Themodelrangeis-%soIthinkwe'rewithinthatrangebutcertainlytowardsthelowerendoftherange.Andyouknowwithinthequarterwegeneratedexthatpayment%ofoursalesinFreeCashFlowwhichisactuallyvery,verystrongandasyouknowwereturn%ofeverythingwegeneratetoshareholdersthroughdividendorbuybacksothanksforthequestion.

Nextcaller.

Operator :

OurnextquestioncomesfromHarshKumarwithStephens.

HarshKumar (Analyst-Stephens):




Greatresults,greatguidance.

Letmejustaskquicklyaboutwirelessinfrastructure.It'squiteabitoffthepeakthatyouguyshitIthinkintheJanuarypartofthisyear.You'retalkingaboutprettygoodtrendshappeningrightnowasyouseeitinwirelessinfrastructure.WhatisyourbestviewofhowtheenvironmentslookingasyougetintonextyearandmaybealsoforCom?

VincentRoche (CEO):

Yes,wellasAlisaidearlierfromageographicalperspective,youknowNorthAmericawasprettyflat.IthinkthestoryintermsofdemandhasbeendrivenbyChinaoverthecourseofFY,thegovernmentcarrierinvestigationshavehadahugeimpactonthedeploymentofinfrastructurethere,soIthinkthepacewillpickupinthe,we'veseensomepickupoverthelastquarter.

DemandhassolidifiedandstrengthenedbutIthinkduringyouwillseeapickupintheFDdeployments.FDD,TD,andparticularlyintheareaofwithregardtoChinaMobile.SmallcelldeploymentinthesecondhalfoftheyeartodenseitFridaythenetworkandgetmorecapacity.AndmysenseisthatGwe'veseenforexample,inIndiaoverthepastquartersomegooddeploymentsinanareawherethedeploymentofLTEisreallyreallylowandhasalongwaytogo.AndIthinkitwillbesteadyinAmericaandprobablygrowmargininEuropeascarriersdeploymoreinfrastructuretheretocatchthenetworksupfromalotofplacesstillpoindgintoG.

DaveZinsner (CFO):

HarshIthinkit'saquestionofwhen,notifandIthinkwe'reverywellpositionedacrossallthecarriersandalloftheregionssoinventorieslooktobeingoodshapetotheorders.Hopefullywe'llholdup.AsyoumentionedourComsbusinessiswelloffitspeaksandIlookbackit'sabout%offitsrecentrevenuepeaksoIthinkthere'splentymoretogoandaquestionofwhennotifsothanksforthequestion.

HarshKumar (Analyst-Stephens):

Thankyouguys.

Operator :

OurnextquestionisfromRossSeymorewithDeutscheBank.

RossSeymore (Analyst-DeutscheBank):

ThanksforSneakingmeinandcongratulationsonthestrongquarter.

Hadaquestiononthecashflowandcapitalallocationside.Youguyshavedoneagreatjobreturningcashlikeyousaidabout%ofFreeCashFlowinthelastyearbutthat'scomesomewhatattheexpenseofdomesticcashwhichlookslikeit'sdownabout-%year-over-year,soIguessmyquestioniswhenyouguyshavethedomesticversusoffshorecash,howdoyoureconcilethatwithbothyourcashreturntoshareholderswhetherit'srepurchaseordividend,andhowdoesthatimpactyourM&Astrategyifatallacknowledgingyouwereabletouseoffshorecashforhit-ite?

DaveZinsner (CFO):

It'sacomplicatedwebnodoubtaboutit.Ithinkingeneral,ifwearereturning%ofourFreeCashFlowbacktoshareholders,wedon'tgenerateatthatlevelintheUSandobviously,allofthathastocomefromUScashflows.SotheUSentitydefinitelywillbeaborrowerandthat'swhywehave$billionofcashand$millionofdebttodayisbecauseweleveruptheUSbalancesheetbutonanetbasiswestillhaveanetcashpositionworldwideandIthinkthat'sgenerallytheapproach.




Therearesituationsinwhichinternationalcashwouldbeutilizedandasyoupointoutoneofthosewouldbeforacquisitionsandthere'salsoanumberofthingsthatwecouldpotentiallydooutsideoftheUSintermsofacquisitionsthatit'snotaverycomplicatedtransactiontoutilizethatcash,sowewillusesomeofthatcashobviouslyforM&AbuttotheextentweneedUScash,wewillusetheleveragetogetthere.


AndRosswehaveoverallliquiditydomesticallyof.-$.billionwhichobviouslyincludestherevolveraswellbutthatgivesusplentyofflexibilitytodothethingswewanttodohereintheUSsothanksforthequestion.

Operator :

OurnextquestionisfromBlayneCurtiswithBarclays.

Unidentif iedPart icipant :

Thanksverymuchfortakingthequestion.ThisisChrisonforblain.Andcongratsonthestrongquarterandguidance.


Thankyou.

Unidentif iedPart icipant :

Ifeelabitlikeit'sbeatingadeadhorseherebutIwanttodrillinontheconsumerbusinessandifyoucanjusttalkaboutlinearityoverthelastcouplequartersforthecorebusinessarea.You'veobviouslyhadabigrampinthewirelessspacebutjusttheexistingbusinessoutsideofthatbigramphowhasthattrendedoverthepastcoupleofquarters?

DaveZinsner (CFO):

Yes,Ithinklet'sjustlookatthelastquarterhere.Overall,I'dsayordersexcludingtheconsumerbusinessinAugustweredownfromthepriorquarter.TheywereslightlyupinSeptemberandOctoberwasverystrongasImentionedearlierparticularlyintheindustrialspacecomingoffoftheweakerSeptembersothatgenerallyishowitstrendedandIthinkwe'vegiventheguidanceherefortheFirstQuarterbasedonwhatwe'reseeingintheorderflowssoIthinkifyouexcludetheconsumerbusinessgenerallyeverythingelseistrendingseasonallyintheFirstQuarter.

Sothanksforthequestionandwe'llgettothenextcaller.

Operator :

OurnextquestionisfromDougFreedmanwithSternAgee.

DougFreedman (Analyst-SternAgee):

Greatthanksfortakingmyquestionsandsqueezingmeinguys.realquickly,lookingatgrossmarginscanyougiveusasensetotherangethatwewouldseebetweentheindustrialconsumerautoandComsgroups?Iknowyou'vementionedthattheindustrialiscontributingtoalittlebitoftheheadwindbecauseitissoftintheguidance,butIwouldhavethoughttheconsumerbeingbelowaveragewouldhavealsobeenalittlebitofanoffsetmaybeifyoucouldhelpmejustmagnifytherangethatwewouldseeacrossthebusinessessowehaveabetterunderstandinggoingforward?




Thanks.

DaveZinsner (CFO):

Yes,I'llseeifIcangiveyouanycolor.

Theindustrialbusinessobviouslyisourhighestgrossmarginbusinessandthatisabovethecorporateaverage.Communicationsisslightlyabovethecorporateaverage.Consumerisslightlybelowthecorporateaverageandautomotiveisslightlybelowthecorporateaveragesothosearekindoftheranges.TheonlychallengeinthatDougisthatthere'salsothedynamicofwhatgetsmadeinthefactoryandsosometimesmixdoesplayapartinkindoffactoryabsorptionandhowmanywafersweproduceandsoforthsothat'sacomplicatingfactorthatdrivesalittlebitofthegrossmargin.

ButIwouldjusttellyoumaybesteppingbackfromit,wehadaverygoodyearintermsofgrossmarginsforwewere%andwethinkthatwhilefocusingoninnovationwegenerallywillgetverygoodgrossmarginsinthefuture.We'vegotsomethingsthatwe'relookingatthatwecontinuetoexecuteonthathelplowerourcostsandimproveourpricing.InfactIthinkoverthelastfewyearsourASPshavebeengoingup,sowethinkwehaveaverygoodopportunitytopushthosegrossmarginshigheroverthenextfewyears.

DougFreedman (Analyst-SternAgee):

Great,thankssomuchandcongratsagain.

DaveZinsner (CFO):

Thanks,Doug.

Operator :

OurnextquestionisfromIanIngwithMKMPartners.

IanIng (Analyst-MKMPartners):

Yes,thanks,soobviouslyyou'readdressingalotofopportunitieshereandconvertersandamplifierswithgoodportfoliostherebutcouldyouremindusofyourviewonpowerManagement?Isthisanareayou'dliketogetintoperhapstoleverageyourscaleandcustomerfacingresourcesorisitnotinterestingatthismoment?

VincentRoche (CEO):

WellpowerManagementasatechnologyforus,wehavegoodtractioninareaslikecommunicationsinfrastructureandforuswearenottryingtobuildabroadbasedcatalogofproducts.WhatwearedoingistakingthecapabilitythatwehaveinsidetheCompanyintermsofprocess,technology,andintermsofcircuittechnologyandapplyingthattechnologytobuildproductsthatstrengthentheoverallsignalchainparticularlyinmorekindofverticalapplications;wherewecangettheleverageinareasasIsaidlikewirelesscommunicationsinfrastructure.

SothatisthestrategyfortheCompanyinpowerManagement.Andwe'vemadesomeveryverygoodprogressthereoverthelastthreeorfouryearsaswehavegivenupthegoalsintryingtobuildabroadcatalogandbrandingpowerbutinsteadtargetedveryverycarefullyattheapplicationswheretheinterplayofpowertechnologyandsignalchaintechnologycreatesavirtualcyclehere.

IanIng (Analyst-MKMPartners):




Thanks,Vincent.

Operator :

OurlastcallcomesfromStephenChinwithUBS.

StephenChin (Analyst-UBS):

Hithanksfortakingthequestion.

Justwantedtoaskafollow-uponautomotive.YougavegoodcolorearlieronsomeofthetrendsherebutjustfromageographicandmaybekindofmacrobiggerperspectivewasChinatheonlyareaofweaknessorwerethereanyothergeographiesthatshowedsoftnessinthequarterandinadditiontothatjustwhatpotentialforinterestratestoseeanincreaseinthecomingquarters,doyouthinkthehighercostoflendinginbacklogsofsalesaswell?

DaveZinsner (CFO):

Yes,Ithinkwe'renotaroomofeconomistshereforsure.

Butletusatleasttellyouwhatourthinkingis,Stephen.Sointhequarter,thebusinesstrendedreallyasweexpectedfrankly.Itwasup%sequentially.Allthethreesubsegmentsofautomotivewe'reessentiallyinloinandprettystableduringthequarter.WhenyoustartedtheyeartheforecastforvehiclegrowthinChinawas%andasweendtheyearit'sabout-%andChinaobviouslyconsumesagoodamountofpremiumvehicles.

ForADIwe'vedonethebackoftheenvelopemathhere.Onourrevenueintheautomotivespaceit'sprobablymidteensimpactfromsalesintoChinasocertainlythatwouldhaveanimpactonourrevenue.Ithinkwhenyoulookacrosstheotherregions,I'dsayNorthAmericahasbeendoingquitewell.TheEuropeanvehicleregistrationseverymonthareupsothat'sgenerallyagoodsign.

WhenyoulookatNorthAmericatheaverageageofthevehiclesisgreaterthanitshistoricalaverage.DealerinventoriesarebelowtheircorporateaverageandinChinatherecentlyannouncedstimulusprogramsaroundsalestypeswereautomotive.Soagain,I'mnotaneconomistandIdon'tplayoneonTVeitherbutfromoursenseeverythingissortoftrendingaswewouldhaveexpectedexceptI'dsayfortheChinaregionwhichyouknowcertainlyhasbeenweakerfortheentireindustry.Andsocertainly,we'renotgoingtobeagnostictothatthatwouldhaveanimpactonoursalesaswellparticularlyasChinaconsumesafairamountofpremiumvehicles.SoIhopethatansweredyourquestionandIguessthat'stheendofourearningscallhere.

We'reminutespastthehour.AsaremindturpitudeourFirstQuarterresultsarescheduledforFebruary.

Again.a.m.PressReleaseEasternTime,a.m.earningscall,sothanksforjoiningusthismorningwelookforwardtotalkingtoyousoon.

Operator :

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Analog Devices (ADI) Earnings Report: Q4 2015 …Analog Devices (ADI) Earnings Report: Q4 2015 Conference Call Transcript The following Analog Devices conference call took place on