管理層發言
Good morning, and welcome to the Analog Devices Second Quarter Fiscal Year 26 Earnings Conference Call, which is being audio webcast via telephone and over the web. I would now like to introduce your host for today's call, Mr. Jeff Ambrosi, Head of Investor Relations. Sir, the floor is yours.
Thank you, Jonathan, and good morning, everybody. Thank you for joining our Second Quarter Fiscal 26 conference call. Joining me today is ADI's CEO and Chairman, Vincent T. Roche, and ADI's CFO, Richard C. Puccio Jr. For anyone who missed the release, you can find it at investor.analog.com along with related financial schedules. The information we are about to discuss includes forward-looking statements, which are subject to certain risks and uncertainties as further described in our earnings release, periodic reports and other materials filed with the SEC. Actual results could differ materially from the forward-looking information as these statements reflect our expectations only as of the date of this call. We undertake no obligation to update these statements except as required by law. References to gross margin, operating and nonoperating expenses, operating margin, tax rate, earnings per share, and free cash flow, and our comments today will be on a non-GAAP basis, which excludes special items. When comparing our results to our historical performance, special items are also excluded from prior periods. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures and additional information about our non-GAAP measures are included in today's earnings release. References to earnings per share are on a fully diluted basis. And with that, I will turn the call over to ADI's CEO and Chairman, Vincent T. Roche.
Thanks very much, Jeff, and a very good morning to you all. Well, as you have seen by now, second quarter revenue, profitability and earnings per share finished above the high end of our guidance, establishing new high watermarks for both revenue and for earnings. Despite the quarter's heightened geopolitical tensions and ongoing macroeconomic challenges, we are currently seeing record demand for our products and solutions. It is at times like these when our dynamic hybrid manufacturing model performs. Our robust investments over recent years have enhanced the scale and optionality of our supply chain, enabling ADI to address demand surges and capture upside. The combination of this supply agility and resilience and our robust R&D investments across core analog segments as well as digital software and AI form the foundation for our growing criticality to our customers. They also enable us to pursue areas that we believe offer the greatest future growth potential for ADI, namely AI-driven computing and connectivity, autonomy, proactive health care, sustainable energy transition, and immersive consumer experience. As I mentioned last quarter, our data center and ATE businesses are taking advantage of strong AI-driven infrastructure investments to achieve new highs. These two businesses are on steep growth trajectories, and as we move through 2026, our confidence in their continued growth into 2027 is increasing. Another robust growth market for ADI is our aerospace and defense business, which reached a new revenue high this quarter, and where increased focus on national sovereignty concerns is accelerating an already strong multiyear growth path. In general, industrial, which includes ATE as well as aerospace and defense, is our most profitable business with 15- to 20-year average product life cycles. We continue to outperform in this space. So today, I would like to unpack more of that story for you by focusing on our industrial business beyond ATE and aerospace and defense, namely automation, electronic test and measurement, sustainable energy, health care, and the broad market. Collectively, these markets have grown more than 40% in 2026. Customers across these sectors are consuming more semiconductors with each new product generation. And from a cyclical perspective, these businesses are still well below their prior cycle highs with lean channel inventories. This combination of secular and cyclical positioning along with strong demand signals gives us confidence that all of our industrial sectors are poised for continued strong growth in the coming quarters and indeed over the longer term. So now going a little deeper into these markets, I will begin with our automation business. Numerous megatrends, including the onshoring of advanced manufacturing and evolving labor dynamics, are increasing demand for digital factories and next-generation robots. The digital factory vision is unlocking new opportunities for ADI, and our portfolio of high-performance sensing, signal chain, power management, and connectivity solutions are enabling the edge intelligence and real-time communication necessary in automated semiconductor fabs, biopharma, data centers, and other discrete and process manufacturing environments, for example. Additionally, as robots make up ever larger percentages of investments in factories and elsewhere, our higher-value products and subsystems for content-rich robotics are aiding automation's fast recovery. Longer term, humanoids and other advanced robotics modalities are steadily increasing our opportunity pipeline value. Overall, we believe we are well positioned to continue capitalizing on automation's tailwinds today and in the future as automation transitions to autonomy. Turning now to our electronic test and measurement, or ETM, business. While ATE systems are geared to enable efficient, high-volume manufacturing of chips, electronic systems ETM supports end-to-end product development and delivery: R&D, prototyping, debugging, and validation, all the way through mass production, in areas such as AI, EVs, and secure communications, for example. ETM is a highly diversified performance-driven market, and ADI's innovative RF mixed-signal and power solutions have built our strong position in high-value applications and are propelling our growth in our design pipeline as customers grapple with increasing levels of complexity and shrinking innovation cycles. Switching now to our energy business. The continued evolution of consumption patterns, due to deeper electrification and high-performance computing, for example, is putting immense pressure on legacy electrical grids and creating profound challenges from energy generation to transmission, distribution, storage, and, of course, consumption. Customers trust ADI to accurately monitor, meter, and manage all levels of the grid. We reliably convert real-world environmental and system data into digital information, delivering the essential edge intelligence, connectivity, and power management solutions today's systems require. Notably, we are also leveraging our high-performance battery management platform to support the energy storage systems that are increasingly key to a stable grid. Demand for our BMS portfolio from our ESS customers continues to be strong in 2026, having grown more than 50% in fiscal 25. In short, our technology helps customers upgrade electrical infrastructure, ingest and manage the intermittency of renewable resources, and smooth the energy demand spikes from applications like EVs, AI, and so on. As the trend of electrification accelerates and demand patterns continue to evolve, we believe energy will continue its growth trajectory for many years to come. Turning next to health care, where technologies and solutions protect and save lives across both clinical and nonclinical care settings each and every day. We are enabling the ongoing digitalization of clinical environments through the combination of our deep domain expertise and breadth of technological capabilities across hardware, software, and advanced packaging. We are seeing secular growth in, for example, advanced imaging, patient monitoring, and surgical robotic applications, where our high-performance solutions are further extending our leadership position. And as health care increasingly migrates beyond clinical to nonclinical environments, demand is accelerating for our wearable solutions for outpatient management of cardiopulmonary and metabolic conditions, essentially extending the digital network edge all the way to the surface of the human body. We are driving double-digit revenue growth in our health care market, and we expect continued growth over the coming years due to increasing design-ins with larger OEMs this year. Turning finally to our broad market industrial business, which has returned to robust growth. This market encompasses a long tail of tens of thousands of established and emerging companies who are addressing a vast array of applications. The tremendous breadth of these customers' needs aligns perfectly with the extensive scope of our diversified performance-leading technologies and application-ready solutions, spanning sensor to cloud, nanowatts to kilowatts, and antenna to bits. Now before I conclude my remarks today, let me speak briefly about our planned acquisition of Empower Semiconductor, which will further augment our power technology portfolio and provide the final piece of our comprehensive grid-to-core power platform. With Empower, we gain cutting-edge proprietary integrated voltage regulator, or IVR, technology, and silicon capacitors that enable us to offer true vertical power delivery to our customers. The extreme power density of Empower's platforms eliminates customers' needs for bulky external components, shrinks their power footprint by up to 4x, slashes their data center compute power consumption by an estimated 10% to 15%, and delivers the ultrafast transient response required by volatile AI workloads. This transaction will expand ADI's total addressable market within the hyper-growth AI accelerator space and further solidify our position as an indispensable hardware partner in the drive for maximum compute density per server rack. We look forward to sharing more of our vision in this exciting space when the transaction closes a little later following regulatory approval. So in closing, we believe our industrial end market is currently in a cycle of broad-based high growth that has been further compounded by our strong investments in the most attractive secular opportunities. As ADI works to bring physical intelligence to the electrophysical interface, our competitive advantage lies in our extensive and evolving tech stack and six decades of experience as well as our deep application domain expertise. These differentiators continue to grow in importance as our customers tackle bigger, more complex challenges at the intelligent edge. As such, our confidence in our future has never been greater. And with that, I will pass you over to Richard.
Thank you, Vincent, and let me add my welcome to our Second Quarter earnings call. Revenue in the second quarter was a record $3.62 billion, finishing above the high end of our outlook while growing 15% sequentially and 37% year over year. Growth was led by our industrial and data center businesses. Industrial, which represented 50% of our second quarter revenue, finished up 20% sequentially and 56% year over year. All of our industrial businesses increased sequentially and year over year, led by aerospace and defense, ATE, ETM, and the broad market. Automotive represented 24% of revenue, finishing up 8% sequentially and 2% year over year. We continue to capitalize globally on content and share gains in next-generation ADAS and infotainment systems, increased demand for our GMSL, functionally safe power, and A2B technologies. In addition, our BMS solutions for EVs returned to year-over-year growth for the first time in two years. Communications represented 15% of revenue, finishing up 22% sequentially and 79% year over year. Data center, which now accounts for more than 75% of our communications revenue, was up more than 90% year over year, driven by both our optical and power portfolios. In our wireless business, we continue to see increasing demand growing more than 35% year over year. Lastly, consumer represented 11% of quarterly revenue, flat sequentially and up 23% year over year. Continued strong growth reflects our exposure to the high-end consumer space and ongoing cyclical tailwinds in our B2B-like prosumer business. Now on to the rest of the P&L. Second quarter gross margin was 73%, up 180 basis points sequentially and 360 basis points year over year, driven by favorable mix, higher utilization, and price. OpEx in the quarter was $872 million resulting in an operating margin above the high end of our guidance at 49%, up 350 basis points sequentially and 780 basis points year over year. Nonoperating expenses were $57 million and tax rate for the quarter was 11.8%. All told, EPS was a record $3.09, up 26% sequentially and 67% year over year. Now I would like to highlight a few items from our balance sheet and cash flow statements. Cash and short-term investments finished the quarter at $3.4 billion and our net leverage ratio remains 0.8. Inventory increased $81 million sequentially as we continue to build strategic die bank and finished goods buffers to support growing demand. Days of inventory finished at 168, while channel inventory weeks declined, remaining within our 6 to 7 week range. Over the trailing 12 months, operating cash flow and CapEx were $5.1 billion and $500 million respectively. We continue to expect fiscal 2026 CapEx to be within our long-term model of 4% to 6% of revenue. Free cash flow over the trailing 12 months was $4.6 billion or 36% of revenue. Over the same period, we returned $5 billion to shareholders through dividends and share repurchases. This robust cash return reflects the strength of our innovation-driven financial model, and our continued commitment to our disciplined capital allocation. As a reminder, we target 100% free cash flow return over the long term using 40% to 60% for our dividend and the remainder for share count reduction. Now moving on to our third quarter outlook. Revenue is expected to be $3.09 billion plus or minus $100 million. Operating margin at the midpoint is expected to be 49% plus or minus 100 basis points. Our tax rate is expected to be 12% to 14%. And based on these inputs, adjusted EPS is expected to be $3.03 plus or minus $0.15. In closing, we delivered a strong quarter supported by disciplined execution and broad-based demand across all of our end markets. We continue to see constructive demand signals in our order book and backlog, particularly in industrial, AI-related applications, and automotive. While we remain mindful of the dynamic macro and geopolitical environment, we believe we are well positioned to continue executing against both cyclical and secular opportunities. With that, I will give it back to Jeff for Q&A.
Thank you, Richard. Now let's get to our Q&A session. We ask that you limit yourself to one question in order to allow for additional participants on the call this morning. If you have a follow-up, please re-queue and we will take your question if time allows. And with that, operator, can we please have our first question?
分析師問答
For those participating by telephone dial-in, if you have a question, please press *11 on your tone telephone to enter the queue. If your question has been answered or you wish to remove yourself from the queue, simply press *11 again. If you are listening on a speaker phone, please pick up the handset when asking your question. We will pause for just a moment. Our first question for today comes from the line of Tore Svanberg from Stifel Nicolaus. Your question please.
Thank you, and congratulations on the record results. Vincent, I was hoping you could talk a little bit about the conversations that you are having with your customers. It seems like demand is very, very strong. I am sure supply and capacity is becoming increasingly a concern for your customers. How are they basically approaching your business at this point? Are they worried about supply? Are they giving you more visibility as far as build plans? Any color there would be great. Thank you.
Thanks, Tore. Generally speaking, I would describe the atmosphere as one of calmness with our customers. There are some concerns, of course, around choke points in the semiconductor supply chain, memory being one of those, which is having the most effect on consumer customers who have to make choices. But generally speaking, our lead times are in pretty good shape and our demand book is increasing. We have a lot more capacity than we had pre-COVID. We have more than doubled internal capacity, and we have a lot more optionality built in as well to external supply sources of process technologies that we are not building inside the company. So I think it is a reasonably calm environment. There is concern about the steepness of the demand ramp across the industry and what that will mean going into 2027. But we have a lot of flexibility and resiliency built into our particular supply chain. So we have a lot more upside that we can take onto our order books and keep a very good service score with our customers. There are places where we are seeing a little more stress than others, but generally speaking, we are in good shape.
Perfect. Thanks, Tore.
We will take our next question, please. Our next question comes from the line of Vivek Arya from Bank of America Securities. Your question please.
Thanks for taking my question. Vincent, I am curious how you are approaching pricing both from a tactical and strategic perspective. So on the tactical side, what are you assuming in terms of pricing for your current quarter outlook and just the second half in general? We have heard several of your competitors starting to increase pricing. How are you viewing pricing in the near term? And then longer term, how sustainable will these pricing moves be? Do you think some of your competitors who have internal capacity can use this inflationary environment to take share? I would love your perspective on both the tactical and the longer-term aspect of it. Thank you.
Thank you. Let me start with the short term. We have increased price during the course of this year, and essentially what we are trying to do is absorb the cost of inflation in our business. That is something we will keep an eye on and offset those input cost pressures as necessary. In the longer term, as a company we have the highest average selling price by far in the industry across the entire portfolio. We are at four to five times the industry average. With each new generation of innovation that we bring to market, we capture more value. The newer parts of our portfolio are capturing more and more value, and that is reflected in the ASPs. Regarding stickiness, it is very sticky because our products have very long life cycles, and the most competitive part of the cycle for ADI is capturing the initial design-in. When we get that design-in, substitution is effectively zero. With a long product-life-cycle portfolio, we are in a strong position to hold the gains we make.
I would add that the tactical pricing we discussed last quarter came through as expected in the results. Everything that was above the midpoint of our guide was actually due to volume, not incremental price. The pricing played out as we expected. If you think about a full-year look at 2026, the pricing actions we've described will add a couple points to our growth rate in 2026.
We will take our next question, please. Our next question comes from the line of Joe Moore from Morgan Stanley. Your question please.
Thank you. The 90% growth that you talked about in the data center portion of communications—could you update us on growth trends within both the optical and the power side of that? And how should we think about growth going forward if you are doing tuck-in acquisitions that can expand the TAM on the power side? Thank you.
Joe, the data center growth, with data center being 75% of our comms and the 90% growth number, is being fueled pretty much equally by similar growth rates across both the power and optical portfolios. Both are continuing to trend very well with strong orders and strong results in the quarter. Given the momentum we are seeing, we expect this to continue to increase and be the fastest-growing area sequentially as we look into the next quarter.
Thanks, Joe. We will take our next question, please. Our next question comes from the line of Joshua Buchalter from TD Cowen. Your question please.
Hey, guys. Thanks for taking my questions and congrats on the results. Maybe following up a little bit on Vivek's question. Could you walk through what is implied for gross margins in the fiscal third quarter? Help us understand the levers across pricing, mix, and utilization. I know there is a 50 basis point inventory true-up that will not repeat, but how should we think about gross margins in the third quarter? Thank you.
Starting from the 73% gross margin, which was a little higher than we expected based on better mix and utilization, for Q3 we are assuming about a 50 basis point decline in gross margin, largely driven by the one-time benefit we got from repricing the channel during the prior quarter. From a mix perspective, we expect it is likely to be a slight tailwind based on our outlook. Utilization is expected to be fairly neutral. We do not see a ton of future upside on gross margin from utilization given where we are running the factories today. That is how we are thinking about it in the near term.
Thank you, Richard. Thanks, Joshua.
We will move on to our next caller, please. Our next question comes from the line of Matthew Pan from Cantor. Your question please.
Guys, thanks for taking the question. How are you seeing the segments tracking into the July quarter today? And how are you thinking about the back half of the calendar year based on your visibility? Thank you.
I'll start with a quick recap. Q2 industrial came in as expected, up 20% sequentially. We saw upside everywhere else, notably in auto and data center. Data center strength continues, and we are also starting to see better results than expected in auto. Consumer continues to show resilience despite consumer sentiment and inflationary pressures, though we expect some impact there. For Q3 at the midpoint of the guide: from an industrial and automotive perspective, we would expect mid- to high-single-digit sequential growth. From a communications perspective, we expect to be our fastest grower, up low- to mid-teens sequentially. Consumer is expected to be down single digits sequentially based on the factors I mentioned. Important to the outlook is a flat channel inventory weeks assumption. We do not guide beyond the next quarter, but from a seasonality perspective the fourth quarter for us is usually up in the low single digits. That is the best outlook we have right now for the back half of 2026.
Thanks, Matthew.
We will take our next question, please. Our next question comes from the line of Stacy Rasgon from Bernstein Research. Your question please.
Hi guys, thanks for taking my questions. I wanted to drill a little bit more into the gross margins. We have been thinking about that 73% range as a sort of near-term peak given utilization is maxed. It sounds like if you get more revenue upside from here, you might have to do more outsourcing given the flexible manufacturing. Is that logic correct? And is that sort of the local peak on gross margins we should be thinking about at least in the near term on the current revenue trajectory?
Yes, I think that is the right way to think about it. Near term, the guided gross margin is the reasonable expectation. Obviously, any more significant mix shift from a growth perspective could change that, but given our outlook for Q3 and potential trend into Q4, I think that is the right way to think about it.
Is data center higher gross margin like industrial, or more in line or lower? It is basically the biggest driver of mix.
Overall, the communications business, which includes the data center portion, is an above-corporate-average business for us.
Thank you. Our next question comes from the line of William Stein from Truist Securities. Your question please.
Thanks for taking my question. Vincent, I was a bit surprised by the Empower acquisition. I would have expected ADI's heritage strength in power—through Linear, Maxim, and by extension Volterra—to provide a big advantage. What did Empower have that ADI decided was so special that it needed to acquire instead of developing it internally? Thank you.
Good question. The power space is very dynamic and has never been as stressed from a technology portfolio standpoint for everybody. We are building intelligent power systems using the breadth of capabilities we acquired over time. Our customers are putting enormous demands on us to solve their problems across the board from the grid to the chip. The reason we acquired Empower is there was a gap in that portfolio and time is of the essence. The biggest bottleneck that AI is creating for us today is power density and delivery efficiency. We have to move closer to the core of the problem, down at the XPU, GPU, and CPU. Empower brings critical and unique intellectual property: integrated voltage regulator architectures and silicon capacitor technology. These are essential building blocks for ADI to solve our customers' problems on time and to catch the wave. The transaction gets us farther up the value chain more quickly to solve problems more completely for our customers and captures a lot of new TAM. It is highly complementary in a space where performance demands are effectively uncapped.
Great. Thanks, Vincent.
We will take our next question. Our next question comes from the line of Christopher Caso from Wolfe Research. Your question please.
If I could follow up on Empower a bit as well. Can you speak to whether there is any revenue associated with that acquisition right now? I am sure you are acquiring it for the IP and engineering team, but are there any design wins in the pipeline? And can you provide a timeline for when you would expect to be able to integrate that technology into the core of ADI's product line?
That was a lot of questions, Christopher. We expect there will be a small amount of revenue upon closing in the back half of our year, but it will not be material to us in that regard. As mentioned, it opens up a massive opportunity for significant revenue growth going forward, particularly related to IVR technology. We would expect to have perspective on the timeline—Vincent, how fast we get there?
We inherit a fairly small amount of revenue—Empower is in a post-revenue phase. But 2027 is when we expect to start seeing a surge in demand. There are a lot of design-ins in train now. The combination of Empower with ADI's large manufacturing and go-to-market capabilities will enable us to get to more places more quickly and get into production much faster. I think we will see significant revenue in 2027.
Thank you, Christopher.
Thanks, Christopher. Let's take our next question, please. Our next question comes from the line of Tom O'Malley from Barclays. Your question please.
Hey guys, thanks for taking my question. I wanted to zoom in on auto a bit more given it was stronger than expected. Across the supply chain coming out of the pandemic, companies moved from just-in-case and just-in-time to holding more inventory at Tier 1s and OEMs. When you look at where the strength is coming from in auto today, are you seeing some restocking at those end customers? I've heard it's a mixed bag—some are above target, some materially below. Are you seeing that phenomenon where guys are slowly moving back toward pre-pandemic ranges? Any areas you would call out specifically as growth drivers in auto given the broader backdrop being weaker? Any areas specific to ADI that are stronger? Thank you.
Great question, Tom. I'll give some detail on what we've seen growing and on inventory. Our auto business has compounded double digits for over 10 years and has grown faster in the last five years. Much of that is driven by content gains and share gains while unit volumes have not changed meaningfully. Our gains are in ADAS and next-gen infotainment systems—products like GMSL, functionally safe power, and A2B. We saw some tariff-related pull-ins in 2025 that we thought might weigh on our first half. We saw below-seasonal in Q1, and we were expecting another below-seasonal quarter, but the strength came through favorably and reflected regular seasonality. The stronger second half we anticipated came a bit sooner, led by a material pickup in China during the back part of the quarter, and that drove a significant part of our Q2 upside. While China still declined quarter-over-quarter, all other regions were up, including record performance in Europe and Japan, resulting in a record quarter for automotive. On inventory, after the digestion we discussed—particularly in BMS—we feel like our auto customers are fairly lean on inventory based on the customers we talk to, which supports our growth expectations going forward. Also, for the first time in two years, our BMS revenue grew double digits year over year, and we are optimistic about continued growth driven by further EV penetration in Europe and China. We continue to hear that China penetration is increasing fast and higher levels of ADAS will be deployed. We expect to see more ADAS in some cars in China by the end of the year. Looking at Q3, we have record bookings and a positive book-to-bill, and we expect above-seasonal growth in the mid- to high-single digits. We are pretty confident in the outlook for the rest of the year for auto.
Thank you. We will move on to our last question, please. Our final question for today comes from the line of Tore Svanberg from Stifel. Your question please.
Yes, thank you. I have a quick follow-up. I think there are increasing concerns about capacity, especially external capacity, given what is happening on the digital side of things. Are you willing to share numerically how much capacity you have internally and externally—meaning how much revenue you could generate? How do you plan to grow that over the next few years, especially now that you are growing more than 30%?
We have talked about the work we have done to double our internal capacity and continue to expand our partnerships. We are comfortable that we have the capacity to support up to the $20 billion level we've discussed as part of our 2030 vision. As part of our normal refresh and CapEx management cycle, we continue to look at opportunities for increased efficiency and opportunities to build additional internal capacity as needed. Externally, we have very strong relationships and to date have not had trouble expanding across that external capacity. There is more tightness in some nodes, but we have not yet been unable to get the capacity we've needed.
Tore, we have been building coverage, both internally and externally, and externally we have put a lot of geographical optionality in play, which gives us more capacity and the resiliency our customers are looking for. So we still have a lot of upside on the current base revenue of ADI both internally and externally.
Sounds good. Thank you.
Thanks, Tore. Thanks, everyone, for joining us today. A copy of this transcript will be available on our website and all available reconciliations and additional information can also be found in the quarterly results section of our Investor Relations website, investor.analog.com. Thank you for your continued interest in Analog Devices.
Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.