Analog Devices, Inc. (ADI)

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Analog Devices, Inc. (ADI)

BMO Technology, Media & Entertainment Conference

December 10, 2013 1:15 PM ET


Dave Zinsner - CFO

Ali Husain - Director of IR


Ambrish Srivastava - BMO Capital Markets


Ambrish Srivastava - BMO Capital Markets

Welcome everybody and welcome back after lunch. And thanks, welcome here to the ADI folks. We have Dave Zinsner, CFO; Ali Husain, IR. So before we go into the -- this is supposed to be a fireside Q&A and we’ll then open it up to questions for the audience. But before we do that Dave, if you could just walk us, give us a quick overview of the ADI story for those who may not be familiar with the company.

Dave Zinsner

So I’m actually -- I’ll let Ali do the elevated pitch, and then we’ll kind of tag team on the questions. So, Ali why don’t you?

Ali Husain

All right. Hi everyone. Thanks Ambrish for having us at BMO as well. So I see a lot of faces here, some new, some that I know. But in any event thank you for being here. So, the analog piece of the semiconductor market is about $30 billion and ADI is about 10% of that market. And really when you kind of split that market out, you have two pieces; one being power management whereas that area where most of our competitors play, the other piece being the signal path or where ADI plays. And really the fundamental building blocks of the signal paths are converters and what we call the high performance amplifiers. And both these sort of product areas, are areas where ADI derives over two thirds of our revenue and where we are also the market leader and are gaining share.

So it’s a little bit of a unique story with ADI within analog, so not only we’re not doing -- we’re doing a bit of power management, we're really we’re focusing much more or serve on the signal path. But where we are focusing is in areas where basically we have the number one market share position and where we’re gaining share. At ADI most of our products are very sort of long life cycled products. There is very low capital intensity. None of our customers -- but you know we don’t have a single customer that’s greater than 5% of sales. It’s a very sort of diversified kind of customer base, not only on the customer side but across regions and markets as well.

What this all allows us to do is basically generate a lot of cash and what we try to then do is take that cash and return it to our shareholders. So, just a couple of quarter ago we put into place this plan of returning 80% of our generated free cash flow to our shareholders over the next five years. And we’re early stages yet of that plan, but certainly it’s a commitment over the five years, over the next five years we’ll be returning 80% of our free cash flow to shareholders.

And just quickly just level set in terms of how our end market split works out, but half of our sales come from the industrial end market, but 20% or so comes from the automotive end market and that’s been growing very well for us. Another about 20% comes from the communications infrastructure end market, primarily in the wireless side where the radios basically that go on base stations. And then about another 14% or 15% depending on the quarter comes from the consumer end market.

So that’s kind of ADI in an about a 30 second elevated pitch I think, and I’ll just turn it back over to you Ambrish for questions.

Question-And-Answer Session

Ambrish Srivastava - BMO Capital Markets

Okay, thank you very much. So, you guys have been very transparent about consumer, we had been through this. At the last earnings call there were a lot -- not a lot, there were few questions around market share loss in industrial communications. And I was trying to -- Ali I went back and tried to do it and it's so hard to do because you can’t do an apples-to-apples comparison. People count their industrial businesses differently, they count their communication differently. But at a high level if you just look at industrial -- if we look at total analog versus ADI, and we understand there you have, as I said before you’ve talked about the consumer. But what is the right way to think about market share in the hard to count market such as industrial and communications?

Dave Zinsner

Well, let me take a little like kind of side position on this. If you look at kind of the -- Ali talked about the kind of major building blocks of products we sell. Two thirds of our revenue comes either from data converters or high performance amps. In both of those, you can look at IDE supply and data bins and data quests, whatever as you want to. In both cases our share has actually increased over the last four or five years. So, I think we’re pretty confident, we haven’t lost share. In fact actually we’ve been gaining share.

There has been -- it does look like power management might have grown a little bit faster if you look at it over kind of an extended period of time. So that might present some anomalies or relative outperformance. But, I think most of it is actually a combination of -- there is a lot of different pieces defined as an industrial in different companies. And so I think in a lot of cases we for example throw in defense but we don’t throw in automotive, which is one of the fastest growing sub-markets and some people throw in automotive, of course that would make our industrial business grow pretty fast.

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