Analog Devices (ADI) J.P. Morgan 15th Annual U.S. All Stars Conference summary

Business performance and cyclical trends

• Experienced a significant inventory correction, second only to the dot-com downturn, with a 34% year-over-year revenue decline at the trough, but recent quarters show sequential revenue growth and improving year-over-year comparisons.

• Non-automotive order trends are improving, while automotive orders saw a dip in early summer but have since rebounded; book-to-bill is tracking at or slightly above one.

• China remains a strong market across all segments, especially automotive, while Europe is the weakest due to macroeconomic softness; the U.S. and rest of Asia are relatively stable.

• Inventory levels have been reduced by $300 million since the peak, with balance sheet and channel inventories expected to remain stable in the near term.

• Fiscal 2025 is expected to be a strong growth year, with Q1 likely to be seasonally down but a pickup anticipated in Q2.

Strategic outlook and long-term targets

• Long-term revenue growth target remains 7%-10%, with operating margins expected to return to high-60s as the cycle recovers.

• $15 EPS target is now expected by 2028, delayed from 2027 due to the depth of the recent downturn.

• Free cash flow return to investors remains a priority, with over 100% of free cash flow distributed since the Maxim acquisition.

• Design win pipeline continues to grow at a double-digit rate, especially in automotive and China, supporting future revenue growth.

• Multiple secular tailwinds, including automation, aerospace and defense, AI, and synergies from acquisitions, are expected to add about three points to historical growth rates.

Segment and market dynamics

• Industrial segment (about 50% of revenue) is diversified, with instrumentation/test and automation each at ~25%, aerospace/defense and healthcare at ~15%, and energy at 7%-8%.

• Automation is currently weak but expected to recover, with robotics and grid upgrades as key long-term growth drivers.

• Automotive segment (30% of revenue) is seeing order recovery, with double-digit growth in EV-related products offsetting legacy auto weakness; about half of auto revenue comes from growth areas like A2B, GMSL, and functional safety.

• AI-exposed business is ~$400 million, mostly in instrumentation/test, with new design wins in optical modules and power expected to add $100 million in revenue by 2026.

• Communications infrastructure remains soft, with muted recovery expected in wireless/wireline, but optical and power management are growth areas.