ADI

Analog Devices, Inc. (ADI)

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Analog Devices, Inc. (ADI)

The Citi Investment Research 2013 Global Technology Conference

September 03, 2013 12:50 pm ET

Executives

David Zinsner - Chief Financial Officer and Vice President of Finance

Analysts

Terence Whalen - Citigroup

Presentation

Terence Whalen - Citigroup

Welcome back to Citi Technology Conference. I am Terence Whalen, Citi's Specialty Semiconductor Analyst. It's a pleasure to have with us today Analog Devices', with us from the company Dave Zinsner, CFO. Dave, Welcome.

David Zinsner

Thank you.

Terence Whalen - Citigroup

Sorry, we can't be a little better on the heating over here. Now, I am going to ask a couple of general questions that we are asking across all of the semi companies and then we can dig into some ADI-specific questions. You guys obviously have had an earnings release recently. What would you character as the real growth drivers here looking into first half '14?

David Zinsner

Obviously, not surprisingly, comm infrastructure looks to be a pretty good market. I think you probably have heard this probably if you asked this question to a number of semiconductor companies, probably everybody is talking more bullish about comm. It looks from our standpoint in the fiscal third quarter, we saw lift both, in Asia or TD-SCDMA, so 3G technology within the China region and then in North America and broadly beyond that looks like we are having some 4G and a combination of 3G and 4G deployments going in those locations. Still on the comm, where everybody wants to see coming in their business is TD-LTE build out, which has long been advertised and yet hasn't delivered so far, but it looks like just based on our reads that that is on the comm pretty soon. Our best guess is that in the fiscal first quarter, we will start to see some revenue from that and hopefully it will continue for a couple of quarters there, but that looks like a great business opportunity for the next few quarters for sure and our expectation is that over the course of several years, we will continue to see capital spending increasing or at least spending increasing on the radio account side that will lift our comm infrastructure business up for the foreseeable future.

Industrial had certainly run into a little bit of trough as well. We had seen, since our second fiscal quarter kind of a steady march towards improvement in that space. I don't it's in any way seeing what normally you see in these cycles, which is a big pick up usually preceded by some sort of shortage of sockets. I think the industrial business at least as far as we can tell is going have a hopefully a steady march of improving numbers. It's probably a little bit of seasonality kind of baked in.

The auto market looks like a great business for us. It's been growing double digits for the four or five years. We've been in what I would call a little bit of a pause in 2013, but our expectation is that the dollar content improvements that are going to go on in auto for the next few years. They are going to continue to drive our business there as well.

Then in consumer, we tend to be a little bit more selective in that space. We think we have some opportunities in the portable space for next year that should lift that business. It's probably going to be sub-seasonal in the fourth quarter, but I think over the course of the quarters beyond that, we should start to see a pick up again in the consumer business if some of these new socket wins that we think we have start of manifest themselves into revenue.

Terence Whalen - Citigroup

Okay. Terrific. One other sort of longer term question that I have is, as we look at consumer, you tend to really want to maintain price and margin in your business and so have to select very carefully. It's sort of interesting that you are getting more into that market now in some ways as the composition of growth is headed more toward emerging market? How do you sort of balance the decision making process given where growth is being generated versus where you see sustainable margin opportunity.

David Zinsner

This is in the consumer business specifically? Yes. I think, our model has been to be very selective in the consumer space. Not surprising one of the headwinds we had on our growth over the last three years, because the consumer business as a percentage of the total has been shrinking. It's running at about 15% of revenue right now. I think that this is where it's going to kind of settle in at.

What we tried to do is, identify areas where we have technology as an advantage where we don't think we have a lot of competition, where we can get a reasonable price based on the dynamics of the consumer market and where we can sustain ourselves over multiple generations. We make those guesses sometimes wrong sometimes we can sustain ourselves and we walk away from the business, but for the most part I think we are pretty good at identifying the areas where we think we can kind of sustain a level of technologies advantage that kind of keep the real kind of pricing bloodbath for materializing. I think that's going to be the strategy going forward in that space.

We there are opportunities, particularly in the portable space. To maintain that technological advantage and those are the areas we are going to kind of invest and focus on, but to be honest with you, we have kind of reduced our R&D investment over the course of last five years in consumer. I think right now where we are spending is probably the appropriate level based on the opportunities we think we have in that space.

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