ADI

Analog Devices, Inc. (ADI)

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Analog Devices (ADI)

Q2 2011 Earnings Call

May 17, 2011 5:00 pm ET

Executives

David Zinsner - Chief Financial Officer and Vice President of Finance

Mindy Kohl - Director of Investor Relations

Vincent Roche - Vice President of Strategic Market Segments (SMS) Group

Robert McAdam - Vice President of Core Products and Technologies (CPT) Group

Jerald Fishman - Chief Executive Officer, President and Director

Analysts

Deepon Sen Gupta

Terence Whalen - Citigroup Inc

Parag Agarwal - UBS Investment Bank

Christopher Danely - JP Morgan Chase & Co

Ian Eigenbrod

Jonathan Smigie - Raymond James & Associates, Inc.

Presentation

Operator

Good afternoon. My name is Michelle, and I will be your conference facilitator. At this time, I would like to welcome everyone to the Analog Devices Second Quarter Fiscal 2011 Earnings Conference Call. [Operator Instructions] Ms. Kohl, you may begin your conference.

Mindy Kohl

Thank you. This is Mindy Kohl. I just want to apologize that I have a bad case of laryngitis today, so I'm going to turn it over to Dave for the opening remarks.

David Zinsner

Thanks, Mindy, and good afternoon, everyone. This is Dave Zinsner, Vice President and CFO. We appreciate you joining us for today's call. If you haven't yet seen our second quarter fiscal 2011 release, you can access it by visiting our website at analog.com and clicking on the headline on the homepage. This conference call is also being webcast live from analog.com, select Investor Relations and follow the instruction shown next to the microphone icon. A recording of this conference call will be available today within about 2 hours of this call's completion and will remain available via telephone playback for one week. This webcast will also be archived on our IR website.

Participating in today's call with me are Jerry Fishman, President and CEO; Vincent Roche, Vice President of Strategic Market and Segment and Worldwide Sales; and Robbie McAdam, Vice President of Core Products and Technologies. This is an opportunity for you to get more color on the markets and product segments since we have Vince and Robbie joining us today.

During the first part of today's call, Jerry and I will present our second quarter fiscal 2011 results as well as our short-term outlook. The remainder of the time will be devoted to answering questions from our analyst participants.

During today's call, we may refer to non-GAAP financial measures that have been adjusted for certain nonrecurring items in order to provide investors with useful information regarding our results of operation and business trends. We have included reconciliations of these non-GAAP measures to their most directly comparable GAAP measures in today's earnings release, which is posted on the IR website. In addition, we have updated the schedules on our IR website which include the historical, quarterly and annual summary P&Ls for continuing operations as well as historical, quarterly and annual information for revenue from continuing operation by end market and product type.

Next I'd ask you to please note that the information we are about to discuss includes forward-looking statements, which include risks and uncertainties. Our actual results could differ materially from those we will be discussing. Factors that could contribute to such differences include, but are not limited to, those described in our SEC filings, including our most recent quarterly report on Form 10-Q. The forward-looking information that is provided on this call represents our outlook as of today, and we do not undertake any obligation to update the forward-looking statements made by us. Subsequent events and developments may cause our outlook to change. Therefore, this conference call will include time-sensitive information which may be accurate only as of the date of the live broadcast, which is May 17, 2011.

With that, let's begin with opening remarks from our CEO, Jerry Fishman.

Jerald Fishman

Well, good afternoon, and thanks for joining us on today's ADI call. Our second quarter was a great quarter for ADI, of course, virtually every dimension of our business, with results that were way ahead of the earlier guidance that we provided last quarter. Revenues were $791 million, which were up almost 9% sequentially and 18% year-over-year. Our growth was driven by strength in industrial, automotive and communications infrastructure products, which increased sequentially by 14%, 12% and 7%, respectively. Sales of consumer products declined by 7% sequentially in Q2.

Order rates were very strong in Q2 and our book-to-bill ratio was above one. Over the course of the quarter, orders were generally strong in February. They spiked in March in reaction to industry-wide uncertainty caused by the events in Japan and leveled off to more normal rates in April, which were in line with what we would normally expect on a seasonal basis.

In managing ADI going forward, it's very critical that we carefully understand the upside that we experienced in Q2 and properly plan with that upside for the balance of 2011. Our best answer after analyzing all the data is that there are 3 principal factors that came into play in the second quarter.

First, clearly the earthquake and tsunami in Japan resulted in less business for ADI in that region in Q2, as many factories were shut down and consumer demand dropped following these disastrous events in Japan.

Secondly, the events in Japan likely caused an industry-wide acceleration of buying by customers to build some safety stock. Despite the fact that ADI's lead times remain short and we got very few product shortages, we believe that customers, some customers anyhow, had some proper inventory of ADI products during the quarter. While we don't believe that this was material to our results in Q2, it was nevertheless a factor.

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