Corrected Transcript
17-Jun-2014
Analog Devices, Inc.
(ADI)
Analyst Day
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Copyright © 2001-2014 FactSet CallStreet, LLC
Analog Devices, Inc. (ADI)
Corrected Transcript
Analyst Day
17-Jun-2014
CORPORATE PARTICIPANTS
Ali Husain
Martin Cotter
Director-Investor Relations, Analog Devices, Inc.
Vice President, Communications Infrastructure, Analog Devices, Inc.
Vincent T. Roche
Mark Gill
President, Chief Executive Officer & Director, Analog Devices, Inc.
Vice President, Automotive, Analog Devices, Inc.
Richard A. Meaney
Michael Britchfield
Vice President, Products & Technology, Analog Devices, Inc.
Vice President-Industrial & Instrumentation, Analog Devices, Inc.
Peter Real
Thomas Wessel
Vice President, High Speed Products and Technology, Analog Devices,
Inc.
David A. Zinsner
Vice President-Worldwide Sales, Analog Devices, Inc.
John Hassett
VP-Assembly & Test Operations, Analog Devices, Inc.
Vice President, Finance and Chief Financial Officer, Analog Devices,
Inc.
................................................................................................................................................................................................................................
OTHER PARTICIPANTS
Vivek Arya
Ambrish Srivastava
Analyst, Bank of America Merrill Lynch
Analyst, BMO Capital Markets (United States)
Steven Smigie
Chris B. Danely
Analyst, Raymond James & Associates, Inc.
Analyst, JPMorgan Securities LLC
Doug Freedman
C.J. Muse
Romit J. Shah
Ian L. Ing
John W. Pitzer
William Stein
Analyst, RBC Capital Markets LLC
Analyst, Nomura Securities International, Inc.
Analyst, Credit Suisse Securities (USA) LLC (Broker)
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Analyst, International Strategy & Investment Group LLC
Analyst, MKM Partners LLC
Analyst, SunTrust Robinson Humphrey
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Analog Devices, Inc. (ADI)
Analyst Day
Corrected Transcript
17-Jun-2014
MANAGEMENT DISCUSSION SECTION
Ali Husain
Director-Investor Relations, Analog Devices, Inc.
All right. Good morning, everyone. Welcome, welcome. We hav e a few people trailing in right now. Welcome to
our 201 4 Analyst Day and we're going to start it off with a quick v ideo that we put together really going into the
themes that we're going to discuss later during the day . So, we'll just hav e a look at the v ideo and then I'll come
right back.
[V ideo Presentation] (00:00:26 – 00:02:00)
Great. Well, I hope y ou enjoy that. So good morning, everyone, and thank y ou for joining us today. As many of you
know, I'm Ali Husain. I head up Inv estor Relations for Analog Dev ices. I'm happy to hav e ev ery one here this
morning liv e and on the web. So welcome to our 201 4 Analy st Day . It's only our third in our almost 50 -y ear
history. So giv en that ty pe of cadence, I think y ou'll agr ee we must hav e something to say this morning. And I
think what y ou'll see from the quality of the presentations here is that indeed we do.
So, as y ou can see from the walk into the building in this v ideo, the theme of this y ear's Analy st Day is ADI 2020,
The Future Now in Progress.
We hav e a great line of speakers. We're going to see a whole cross -section of our management team and hear all
about their businesses and strategies and prospects for growth. And I think we'v e got a great lineup here for y ou
this morning. And I trust that everyone is going to walk out of here today realizing that this was indeed time well
spent to get a deeper understanding of ADI and about how the people who lead ADI think about the opportunities
ahead and how that translates into good growth, strong profitability and v ery good returns for our shareholders.
This morning isn't meant to be a totally intensiv e discussion about ev ery thing we do here at ADI. We certainly
couldn't fit that into a morning. So we'v e picked some specific areas that we thought would be interesting to y ou
and those are the ones we're going to highlight here this morning.
So before we get started and I'm sure this is going to be ev ery one's fav orite slide, let me start by reminding
ev eryone that the presentation today will contain forward-looking statements, which address a v ariety of subjects
including, for ex ample, ADI's ex pected product dev elopment and technical adv ances, financial goals and
ex pectations, plans and expectations relating to the proposed t ransaction between ADI and Hittite Microwav e
Corporation, the expected benefits and sy nergies of the transaction including the effect of the transaction on ADI's
non-GAAP earnings and ADI's guidance for its third and fourth quarters of fiscal y ear 201 4.
These forward-looking statements include risks and uncertainties which could cause our results to differ
materially from the forward-looking statements made during today's presentation. Therefore, today's presentation
will include time-sensitive information that may be accurate only as of the date of the liv e broadcast, which is June
1 7 , 201 4.
Accordingly , participants listening to this presentation are cautioned not to place undue reliance on these
statements, which reflect management's opinions only as of today . Information on the factors that could affect our
results is included in our filings with the SEC including, but not limited to the press release we issued on June 9
announcing the transaction between ADI and Hittite. And our most recent Form 1 0 -Q and our other filings with
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Analog Devices, Inc. (ADI)
Analyst Day
Corrected Transcript
17-Jun-2014
the SEC, the company undertakes no obligation to update the statements made at today 's ev ents to reflect
subsequent ev ents or circumstances.
In addition today 's presentation, we'll present some non -GAAP measures which are intended to serv e as a
complement to our GAAP results. A reconciliation of our non-GAAP measures to the most directly comparable
GAAP measures is av ailable in our most recent financial release which can be found in our Inv estor website at
inv estor.analog.com. And I know that's V incent's fav orite slide because we talked about that earlier.
................................................................................................................................................................................................................................
Vincent T. Roche
President, Chief Executive Officer & Director, Analog Devices, Inc.
Thanks for doing that.
................................................................................................................................................................................................................................
Ali Husain
Director-Investor Relations, Analog Devices, Inc.
I know y ou liked it. So – and with that, would y ou going to walk quickly through the agenda here. Feel free to
follow along with the brochures that y ou got this morning.
So we're going to run the presentation until about 1 2:30. It will be followed by lunch, t hat's just out here in the
drum area. As a general statement, we want this to be highly interactiv e, so there is going to be plenty of Q&A
sessions throughout the day here.
So following my current introduction, we'll begin the presentations with the remar ks from V incent Roche, who is
ADI's CEO who many of y ou. We'll follow V ince up with Dick Meaney who runs our core technologies. Dick is
responsible for our Products & Technology Group, which includes our all important technology franchises of data
conv erters and high performance amplifiers, among many others.
And following Dick will be Peter Real. And Peter leads our High Speed Products and Technology Group and Peter
will tell y ou all about the many opportunities for ADI in the areas of RF, microwav e and millimeter wav e.
And following Peter at 1 0 past 9 will be ADI's CFO, Dav e Zinsner, who many of y ou know, some of y ou know him
as the Ben Affleck of semiconductors. Y eah, I think Dav e may be put that one in. So Dav e will walk y ou through the
financial model and we're going to hold the Q&A session right after Dav e's presentation so y ou can ask y our
questions.
So following that, we'll hav e a short break. And then at 1 0, we're going to run what we call our Growth Driv er's
panel and that y ou're going to have our V Ps of Automotiv e, Industrial and Communications Infrastructure and
they 're going to discuss the reasons we feel strongly about the growth opportunities we hav e in those markets. And
again, we'll follow that up with another Q&A session and I'll plug it a nd say that that space, the B2B space,
industrial, auto, comms is now 89% of ADI's total sales, which I think is really a good mix of business for us.
We're getting there. So getting towards the finish line now, at 1 1 .30 a.m., we'll pick back up and we'll hav e our V P
of Worldwide Sales, Thomas Wessel, followed by our V P of Manufacturing, John Hassett, and they 'll tell y ou all
about ADI's leadership performance and how we think our go -to-market strategy and our world-class
manufacturing and supply chain ope rations are true competitiv e adv antage for ADI.
And finally at 1 2, I promise, V ince and Dav e are going to come back and close up the conference and we'll follow
that up again with another Q&A session and this time, it will be with V ince and Dav e and our e ntire panel of
presenters from this morning.
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Analog Devices, Inc. (ADI)
Analyst Day
Corrected Transcript
17-Jun-2014
So we'v e a v ery busy morning ahead of us clearly . And I hope this giv es y ou a flav or for what's going on at ADI
today in 2020, which is the theme of our conference and well into the future. Because ladies and g entlemen, the
future is now in progress and ADI is v ery much at its heart.
So I think that's a good segue to introductions. Ladies and gentlemen, it's my great pleasure to inv ite on stage,
ADI's President and CEO, V incent Roche.
................................................................................................................................................................................................................................
Vincent T. Roche
President, Chief Executive Officer & Director, Analog Devices, Inc.
Thank y ou, Ali. Thank y ou. Well, good morning, everybody. You're all v ery welcome to ADI's 201 4 Analy st Day ,
The Future Now in Progress. That's our theme for the day and I think it's a great description of the ex citing
innov ation that's going on at this great company. Many of y ou hav e known us for a long, long time, but before we
talk about the future, I'd like to tell y ou a little bit about our heritage and what is the essence really of ADI.
In 201 5, we will celebrate our 50th anniversary. And since our founding, we've played at the leading edge of signal
processing innov ation, where we hav e enabled many breakthroughs in the information and communications
technology space. Today, we possess the broadest product portfolio, sy stem and manufacturing capabilities and
high performance signal processing to solve our customer's toughest challenges at the intersection of the phy sical
and the digital worlds.
The basic philosophy that underlies this co mpany is that superior innovation drives superior results. As such, our
culture is focused on innov ating throughout ev ery part of our business. We take a long -term v iew to our
customers, our investments and our employ ees while placing v ery high importance on ex ecution ex cellence in
ev ery facet of what we do.
We striv e to diversify our business and our products and technologies. In fact, it is this div ersity that has giv en us
the strength and the endurance to not only survive, but to thrive over a 50 -year period. What's really exciting to us
at this time is that our technology is becoming more relevant to a world infused with connected sensors that are
creating new sources of v alue with economic, social and env ironmental impact.
Now, I believ e that this future is completely in ADI's wheel house. Many of the innov ations that will be
foundational to this future are at the intersection of the phy sical and digital domains. Requirements are for signal
processing technology that can sense, capture, condition, conv ert and process to enable the sensor -laden, hy per
connected env ironment.
Ex celling at innovation here is what we do. In a world abuzz with increasing lev els of electrical noise, we ex tract
the signal to allow our customers to generate high quality informa tion. And thanks to the strategy transition that
we began sev eral years ago to more sharply focus our technology and talent on our signal processing mission,
we're already at work creating my riads of signal processing solutions to make the most possibiliti es a reality .
Now the opening v ideo gave y ou just a glimpse of those ex citing opportunities. Our industry is in the midst of a
seismic shift, a new era as transformativ e as the mainframe, the personal computer and the smartphone is
progressing.
Now, frankly as I said to some of y ou last night, I think the popular term for the era, The Internet of Things, is
being ov erused and ov erhyped. I prefer to call it the third wav e. But whatever you choose to call it, customers are
pay ing attention and they 're inv esting heav ily in it. The trend we are ex periencing is about the capturing of
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Analog Devices, Inc. (ADI)
Analyst Day
Corrected Transcript
17-Jun-2014
massiv e amounts of real-world information and doing so in real time, thereby creating an essential element of
what we call big data. This is really the confluence of internet data, business data, sensor data and essence the
signal that together requires a new generation technology , architectures, and analy tics. Such data will help
companies of all sizes to unlock new sources of v alue. And increasingly our customers are turning to us for help in
ex tracting that signal.
Now, Dick Meaney , our V P of Technology , will talk y ou about these trends and our enabling technologies.
So, ADI is one of the few companies with a required breadth of product and technology and sy stem domain
ex pertise that's poised to take advantage of this latest revolution in the world of ICT. The technologies in which we
hav e been focused in innovating for the past 50 years will be ev en more critical in the future I believ e as the need
to sense, monitor, control and connect, become ev en more perv asiv e.
In the signal processing space, to take on the challenges, there are a few critical pillars that are acquired.
Conv erters, an area in which we hav e 50% market share; high performance amplifiers, we'v e also got about h alf
the market there, and we hav e two growing franchises in microwav e and RF technology and also MEMS and
sensor products. As you heard last week, we're planning to acquire Hittite Microwave Corporation to expand their
offerings and accelerate growth in the RF, microwave, and millimeter space. More on that later from Peter Real.
Now our product development efforts are more focused than ev er on our core signal processing mission. We're
inv esting more than $500 million per y ear on this mission to deliv er sig nal processing solutions that keep us on
the edge of innov ation, to make an increasing difference to our customers and to deliv er strong returns for ADI.
Our product dev elopment strategy is to identify the fundamental challenges with which our customers a re
grappling in key application areas and ultimately apply our solutions across as div erse a set of applications as
possible.
During the course of the morning, y ou will hear ex amples of how this strategy is play ing out from a v arious
segment leaders there. Now y ou may recall that sev eral y ears ago, we began the process of redirecting our
inv estments and our resources into the most attractive long-term opportunities that is, selecting areas with higher
barriers to entry where we can achiev e higher and more sustainable growth and returns.
Specifically, this has meant carefully selecting the most attractive opportunities in consumer and increasing our
inv estments in the B2B space. While the sales in the consumer area did decline as a result, our B2B growth ha s
fared better than many of our competitors ev en through the recession.
The strength of our innovation, our business mix , and operational efficiency gains hav e allowed us to produce
better returns for our investors over the y ears. Also notably , the business model has allowed us to create strong
cash flow ev en in the worst of times during the turbulence we hav e ex perienced in the past sev eral y ears.
We believe that our business model and the opportunities that lie ahead will put us in a position to d eliv er ev en
more impressive returns in future. Y ou'll hear more about our updated financial model from Dav e, as Ali said,
otherwise known as Ben Affleck. By the way , he is the one with the accent here.
Now, all of our strategic segments, there are two imp ortant things in common, each play s a part in shaping the
future to which we're alluding in our theme and each isn't the sweet spot of ADI's capabilities. So how do we see
these segments fitting into this v ision of 2020?
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Analog Devices, Inc. (ADI)
Analyst Day
Corrected Transcript
17-Jun-2014
By then, the automotive industry will use 22 billion sensors per y ear, that's 22 billion. These sensors create myriad
opportunities for us to play a more significant role in the electrification and automation of the automobile. And
our customers are increasingly turning to ADI for the solu tion, as y ou'll hear from Mark Gill in just a while.
By 2020, factory automation and control will drive the next wave of industrial revitalization, what many called the
fourth industrial revolution. Factory floors will become hy per connected through senso r-laden, smart products,
capable of communicating machine to machine to driv e productiv ity .
It is believ ed that the v irtualization of the phy sical world will rev italize the industrial complex, positioning ADI to
gain share as the market opportunity here grows to more than $5 billion per y ear. Mike Britchfield will talk in a
while about the opportunity in the industrial space.
Now, ubiquitous secure connectiv ity of people and machines with high quality of serv ice lev els is the critical
challenge for the co mmunications infrastructure sector, both wired and wireless. By 2020, wireless network
serv ice providers will need to support 1000 times more data capacity than today . The limited av ailability of RF
spectrum will continue to driv e the need for more adv ance d radio and backhaul solutions. And that is ex actly
where ADI has been play ing an increasing emphasis over the last few y ears. Martin Cotter will update y ou on our
plans in this particular area.
By 2020, there are ex pected to be 7.7 billion people on the planet and 50 billion devices connected to the internet.
The ubiquitous sensing and connectivity will redefine smart home, smartphone and smart cars. ADI's real -world
signal processing will be at the center of new ex periences by infusing consumer electroni cs more deeply into our
world.
Now, we are lev eraging the breadth and the depth of our v ast arsenal of signal processing technologies and
knowhow to deliv er the array of solutions required by our v ery broad customer base. While y ou know us well for a
catalog of 20,000 standard products sold to tens of thousands of customers, y ou may not realize that we also
deliv er more integrated solutions and application-specific products to our customers.
Today , y ou'll hear more about some of those compelling solutions from some of our segment leaders in just a
while. The product innovation is only one facet of the v alue proposition required to be a long -term partner to our
customers in the y ears ahead. In order to supply the 20,000 product skews to tens of thousands of customers with
one pack per million quality levels on time, excellence in manufacturing and supply chain activ ities is needed to
create the experience that customers have become accustomed to receiving from ADI. You'll hear more from John
Hassett, who is our V P of Assembly and Test Operations in just a while.
Now keeping on the forefront of technology innovation, requires us to dev elop solutions in adv ance of y et to be
defined problems. Customers are dealing with ever increasing speed of innov ation, the i ncreasing complex ity of
their technology offerings and thinning analog dev elopment resources in their companies.
They increasingly value our ability to engage in conversations about the possible, and to think beyond components
in order to deliver whole product solutions that will shorten their design cycles and get them to market faster. We
refer to this as the v irtuous cy cle of innov ation. And within our cy cle of innov ation, employ ees are our most
important asset. Ov er the years, we have fostered a unique culture of self-initiativ e, inv entiv e entrepreneurship
and engineering ex cellence coupled with a spirit of collaboration and teamwork passionately focused on our
customers.
But y ou can't hav e great innovation unless you hav e great innovators and y ou can't hav e great innov ators unless
y ou hav e a work env ironment that attracts, retains and develops the best and the brightest engineers. That's also a
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Analog Devices, Inc. (ADI)
Analyst Day
Corrected Transcript
17-Jun-2014
v irtuous cy cle. Compelling innov ation earns high profits, which can be reinv ested in the talent and resources
needed to inspire innov ation in the future.
Now, it might be a cliché to say that employees are our most important asset, but it's true. Increasingly customers
are looking to interact with our engineers. In my ex perience, the magic innov ation – the magic of innov ation
occurs when our engineers engage early in the innovation cycle with our customers. The increasing frequency and
intensity of these interactions bodes well for us as we bring to bear the full breadth of our technology and
ex pertise to solve their toughest challenges in an increasingly holistic way . Thomas Wessel, our V P of Sales will
describe how we connect with our customers in a v ery nuance selling and applications model.
Now I believ e v ery passionately in what we're doing and where we're going. Through many conversations with our
customers, I know that they are choosing their long-term partners v ery carefully and I believ e that they will rely
on ADI's capabilities more and more in future. As I said, our engagements are occurring earlier an d earlier in their
innov ation cycles and our collaborations are becoming longer term in nature and there is no limit on the lev el of
innov ation that they 're demanding from ADI. They hav e a v ery solid business model and are focused on
accelerating growth through focused innov ation.
We'v e been carefully picking our targets and inv esting for the long term. And our long tenured management team
remains committed to keeping our company div erse and true to our business model.
So with that, let's get started and I'll turn it ov er to Dick Meaney , who will bring you more up to speed with a lot of
depth about our technology capabilities. Thank y ou.
................................................................................................................................................................................................................................
Richard A. Meaney
Vice President, Products & Technology, Analog Devices, Inc.
Good morning ev erybody. I'm Dick Meaney , V ice President of our Products & Technology Group, which includes
the engineering teams for all our new products and adv anced technologies of ADI.
I'm delighted to talk to y ou here this morning about these ex citing times ahead for ADI. So real -world signal
processing is central to the growth applications we see happening which makes ADI more relev ant and impactful
in our target markets than at any other time in our almost 50-year history. V ince has mentioned the third wav e of
information and communicatio ns technology . It is ex citing for us because our constancy of purpose and
leadership in real-world signal processing throughout our history puts ADI in a great position to enable and
benefit from this wav e of innov ation. I don't care much either for the na me Internet of Things. I think of it as the
Internet of Signal Processing.
To put this new ex ponential growth opportunity in perspectiv e, I need to look back to the beginning of our
semiconductor industry to size the scale of the opportunity we face.
The first wav e of the dev elopment of mainframe computers beginning in the 1 950s and enabled commercially by
the birth of solid-state electronics in the mid 1 950s. The mainframe found its primary use in information
processing, parallel to this was its use in r esearch and industrial applications.
Ten y ears later, ADI was founded in 1 965 by Ray Stata, Chairman of our Board of Directors today . Ray and his
colleagues built analog signal conditioning amplifier modules using laboratory instruments and large industrial
control sy stems.
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Analog Devices, Inc. (ADI)
Analyst Day
Corrected Transcript
17-Jun-2014
By 1 97 1 , ADI had transitioned from modules to integrated circuits. We had become an IC company with the
release of the industry's first instrumentation amplifier and analog multiplier ICs that enabled more widespread
and complex analog signal processing.
The second wav e of the technology was the personal computer era which was driv en by the inv ention of the
microprocessor. Sensing, conv erting and digitally processing real -world information under the manufacturing
floor and communication sy stems and research laboratories fueled a wav e of innov ation in v irtually ev ery
industry . By mid 1 97 0s, ADI developed a portfolio of converted IC products with increasing accuracy , speed and
efficiency to seed what has become our leadership fran chise in conv erters ev er since. New sensor technologies
were emerging and ADI released the 2 -Terminal IC temperature sensor in 1 97 1 which became one of our many
industry standards and still sells well today .
As IC technology continued to follow Moore's Law with transistor count doubling ev ery two y ears, the power of
the desktop PC mov ed to the laptop to the smartphone to the tablet until today virtually everyone of the developed
world has at least one dev ice and everyone here probably has two or three. So the number of personal dev ices has
approached the global population.
With this ex plosion of dev ices, the appetite for connecting computers and people fueled massiv e innov ation and
growth in wired and wireless infrastructure using ADI signal processing tec hnology and creating a key enabling
communications platform for the nex t wav e.
The third wav e is now emerging. Machine -to-machine communication means dev ices pull out number of people
on the network by orders of magnitude. These machines combined many sen sors and signal processors,
communicating massive amounts of data to the cloud where algorithms and analytics will integrate data and mine
v alue.
The famous researcher at PARC, Mark Weiser, first described ubiquitous computing and sensing in 1 991. ADI had
just announced its first inertial sensor based on Microelectromechanical Sy stem or MEMS technology as we call it.
Weiser predicted the technologies would advance and become perv asiv e to enable tiny robust network dev ices
distributed to all lev els througho ut daily life, a great prediction and it took a while but all the enabling
technologies are now in place. This third wave needed digital sy stems -on-a-chip to emerge and better sensors and
data conv erters and low power processors to perform signal processin g. New ty pes of search algorithms and
software tools were needed to make sense of all the data. In 201 1 , ADI acquired Ly ric Labs for their algorithm
ex pertise central to these difficult signal processing problems.
Importantly – this is a semi-log chart. For each wav e there is three orders of magnitude larger than the prior
wav e, which has led many researchers to predict more than 50 billion dev ices connected by 2020 and billions
more the y ears after.
In summary , when the combination of signal and data pro cessing is av ailable, the right communication
technologies widely deployed and the critical software tools and applications are embraced, we hav e the makings
of a once in a generation rev olution.
And this brings us to where we are today with the future already in progress. With the ex pertise ADI has perfected
ov er 50 y ears, mov ing from the periphery in prior wav es to the fulcrum in the third wav e of information and
communications technology. In a way it's the same real-world interface challenge that ADI has addressed in prior
wav es to sense, monitor and control real-world phenomenon and connect to the digital world. Ex cept now, the
accuracy need is higher, speeds are faster, the power consumption must be much lower and the number of points
of measurement has ex ploded.
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Analog Devices, Inc. (ADI)
Analyst Day
Corrected Transcript
17-Jun-2014
It was, is and alway s will be an analog world of light, sound, pressure, motion, radio waves, and all the signatures
of natural and man-made activ ity . When we measure this activ ity with sensors, we get a complex and noisy
electrical signal that must be amplified, filtered and conv erted into the digital world with as much fidelity as
possible. This data is then communicated across networks through the cloud or the control of the dev ices. ADI is
aimed at the heart of this sensing, conversion, com munication and control challenge. It's what we do. And while
our leadership position in MEMS sensors, high performance amplifiers, signal conv ersation, RF is formidable, it
must be constantly adv anced.
Within the four y ears since we last presented to you, here are some of the highlights that we hav e developed. Ultra
low-power inertial sensors with 1 00 times lower powered than competing alternativ es. This is on the back of the
billion MEMS Sensors we hav e shipped into automotive and industrial applications; optoelectronic sensors and
signal conditioning capability that enables detection and analy sis of light with such div erse applications as v ital
signs monitoring, measurement of object prox imity and recognition of human gestures; precision signal
conv ersion at one part per million accuracy with over 1 00 channels and embedded microcontrollers integrated
together; signal conversion reaching deep into sub -micron design to achiev e 1 0 times higher sample rates to 2.5
giga sample per second for advanced radio infr astructure and industrial applications; high performance software
defined radio products that greatly simplifies our wireless infrastructure customers to help us to radio design
challenges; achieving RF integration on innovative and proprietary silicon ger manium processes replacing many
discrete functions that required high-power galliumarsenide technology ; shipped a billion channels of digital
isolators with our novel integrated magnetics iCoupler technology that enables sy stem designers to implement
isolation without the size, power, performance and reliability constraints of optic couplers.
These breakthroughs lev eraged the shrinking lithography of CMOS that supports Moore's Law which is
represented on the v ertical axis of this graph. Our giga sample per second converters are examples which are built
on 65 nanometers of CMOS.
In addition, a div erse set of technologies are necessary to interface to the real -world what I'm calling More-thanMoore on the horizontal axis of the slide. The optimal real-world interface solution is seldom a single sy stem-ona-chip. Better to use the best technology for the function and robustness that the application requires.
The combination of these technologies in tiny 3D packaging form factors giv es us the miniaturization n ecessary to
deliv er sensing and signal processing solutions needed by all our market segments. It is the combination of ADI's
ex pertise across as many as 50 wafer processes in activ e design today , the circuit design innov ations in all
functions and the adv anced packaging that enables the level of performance and completeness of our solutions.
It is clear from our industrial, healthcare and automotive customers that we are seeing an increasing demand for
continuous health monitoring, continuous machine monitoring, continuous env ironmental monitoring, ev en
continuous motion monitoring. Yes, ultra-low powered inertial sensors are used to instrument the dairy cows and
detect the motions that indicate when they 're getting sick, so farmers can isolate the ani mals from the herds.
There is ultra-low power instrument and the color of the cow also detects the particular motions that indicate the
stage of the reproduction cy cle. We just nev er know where our breakthrough products are going to be used.
The ubiquitous sensing and connectivity wav e is impacting all our key markets in ex citing way s as y ou will hear
from colleagues later, leading our automotiv e, industrial and communication businesses later this morning.
Now an application that I want to highlight is in the healthcare segment or market. So non-intrusiv e clinical
quality wireless sensor monitoring will disrupt the world's medical system by doing prev entativ e and diagnostic
medicine in the home enabled by ADI sensors, instrumentation and connectivity techn ology . Enabling cable free
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Analog Devices, Inc. (ADI)
Analyst Day
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17-Jun-2014
and wireless clinical monitoring of patients recovering from medical procedures will reduce risk of infection and
enable better mobility to accelerate the patient's recovery . Here is the ex ample of ADIs command of More -thanMoore roadmap is enabling, it's a portable, multi-parameter v ital signs monitoring sy stem.
At the top of the graphic is our recently released heart rate monitor. This tiny sensor module contains red and
green light sources, our high sensitivity photodiode rece ivers stacked on top of our signal processing IC housed in
a special transparent package that contains light wires between source and receiv ers and embedded lenses that
shape and collect the light.
A simplified v ersion of this sensor is used in the pulse ox imeter function in non-inv asive clips that attach to y our
finger to determine oxygen levels in y our blood. Our ultra -low power three-ax is MEMS inertial sensors measure
mov ement and enable compensation for motion artifacts and a central sy stem capability to ex tract reliable
diagnostic information.
Other sensors include simple contact to measure skin conductance and chemical strip interface for glucose
measurement. All of these signals are amplified and conv erted in our healthcare sy stems -on-a-chip which will
prov ide the user interface, display drivers and connectiv ity . ADI technology is enabling activ e sensor fusion of
multiple v ital signs measured in clinical lev el accuracy with a low sy stem cost, high performance, tiny size all
powered by coin cell or rechargeable battery .
Let me turn to what it takes to continuously innov ate across all the sensors and signal processing technologies
required to provide previously unimagined solutions to our customers' problems. Our innov ation engine requires
inv estment in three concurrent cy cles of technology dev elopment. We inv ested in adv anced R&D, which will
become the new breakthrough core technologies of the future while in parallel we continue to optimize new
product development capability to provide the most innova tive solutions to our customers in the shortest possible
time.
For ex ample, while we're releasing breakthrough products in 65 nanometers CMOS today , we hav e already
published early advance work on 28-nanometer data converters, which will provide a further two times increase in
signal bandwidth and half the power consumption.
We continue to develop our MEMS inertial sensor technology for higher performance, lower power and higher
lev els of integration. We're adv ancing ultra-low power and energy harvesting technology for our nex t generation
of wireless sensor networks. We are dev eloping algorithms and software to combine both sensor node and cloud based signal processing to enhance sy stem performance. Such adv anced technologies are v alidated and
augmented to become the product development platforms that enables breakthrough standard products and fast
time to market application specific solutions.
A recent example is our breakthrough 2.5 giga sample per second analog to digital conv erter just released in our
portfolio of ultra-high speeds data converters. This is on 65 nanometers CMOS, as I mentioned, which would have
been in adv anced development when we last presented to you. And as I mentioned, the 28 -nanometer generation
is coming up fast.
This performance enables direct sampling of up to 2 gigahertz RF signals at the antenna which revolutionizes how
radios can be designed. Instead of fix ed function analog filtering and mix ing components, our breakthrough
conv erter performs these functions in the digital do main giv ing our customers a highly v alued sy stem flex ibility
prev iously not possible.
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Analog Devices, Inc. (ADI)
Analyst Day
Corrected Transcript
17-Jun-2014
Above 2 gigahertz and into microwave, and millimeter wave band of the frequency spectrum, specialized analog
signal processing technology must be used and our investment s in that space are bearing fruit also. And to tell that
story , Peter Real, our V ice President of High Speed Products & Technology is coming up nex t.
So let me finish by summarizing what it takes to keep producing the industry's leading signal processing products
and solutions y ear after y ear. It's first and foremost about the engineering talent. ADI has the largest team of
signal processing engineers in the industry and that 50,000 staff y ears of ex perience is our strongest and most
sustainable competitiv e adv antage.
From working with our customers through multiple generations of their products, we hav e a deep understanding
of their needs and their customers' needs. Combine that with the technologists who can imagine what is possible,
we can bring v isionary solutions to reality . Our culture of innov ation, solv ing difficult customer problems and
doing what it takes to deliv er that innov ation to our customers will keep ADI as the leader in real -world signal
processing.
I hav e talked a lot about technology and I hav e highlighted the quality and ex perience of our people in engineering
depth and breadth. With my 34 y ears of ADI, I can see how much faster we're bringing up new technologies,
releasing new products faster, and managing greater levels of complexity. We distinguish ourselves by the speed at
which we learn, adapt, and deliver to the ev er -changing market and application requirements and it's my job to
make sure that we continue to create the industry -leading products and technology for this ex citing e ra of the
Internet of Signal processing. Thank y ou.
[indiscernible] (38:1 0) Peter?
................................................................................................................................................................................................................................
Peter Real
Vice President, High Speed Products and Technology, Analog Devices, Inc.
So, good morning, ev ery body . I'm Peter Real, V ice President of ADI's High Speed Produ cts and Technology
Group, and I'll talk v ery briefly this morning about our high -performance RF strategy . More specifically , I'll size
the market opportunity; I'll describe some of the trends in the marketplace and then ex plain our strategy giv en
these trends.
But, first, let me start by defining RF. RF, which stands for radio frequency generally refers to radio wav es or
electromagnetic radiation that covers a range of spectrum from 1 0 kilohertz at the low end to over 100 gigahertz at
the high end. These radio frequencies or radio wav es are used as high -speed communication channels ov er
multiple media ty pes. Ex amples include mobile phone communications, wireless LAN access networks, TV
channel serv ices that are deliv ered ov er fiber -optic cables, and so on and so forth.
On this chart, I'v e represented the RF frequency spectrum from left to right, going from 1 0 -kilohertz to 1 1 0
gigahertz. While we generically call this the RF spectrum, technically it is broken down into RF, microwav e and
millimeter wave sub-bands as shown. What the chart shows is for v arious communications channels associated
with different end market applications are positioned on this frequency spectrum. These applications are in
multiple end markets, including communications, infrastructure , industrial and instrumentation, automotiv e and
medical. And y es, indeed, the slide is busy and indeed incomplete which reflects the perv asiv e nature of RF
communications.
Also, it's worth noting that in just about all of these RF applications, they all have one thing in common and that is
the requirement for v ery high-speed signal processing in both the analog and the mixed signal domains. Sizing the
high performance RF market is quite challenging. By high performance RF, I mean the markets such as those
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Analyst Day
Corrected Transcript
17-Jun-2014
shown on this slide. These are markets where high performance RF really matters and users either don't or can't
tolerate poor quality of service. High performance RF is hard to do well, it takes time to build the necessary critical
engineering competence to develop industry-leading solutions which once built create high barriers to entry. High
performance RF generates high v alue of solutions which in turn support high margins.
We size these combined market opportunities at about $3 billion. Y ou'll hear mo re about some of these market
opportunities later this morning, but what I want to do is talk about some of the higher lev el trends within these
end markets and how these are directing our inv estments in high performance RF technology .
So returning to the frequency spectrum diagram, let me make two v ery fundamental points. The first is the trend
for communications channels to move to higher frequencies as they evolve overtime. There are two key reasons for
this. First, when communications channels reach ca pacity and the only way to add capacity is to open up new
channels. And since the frequency spectrum is v ery densely populated at the lower frequencies then the only place
is to go up in frequency to where spectrum is indeed av ailable.
A couple of different end-market examples illustrate this point. One is cellular communications where 2G, 3G and
4G sy stems operate today at sub-six gigahertz frequencies. These communications channels hav e become v ery
densely populated. For next generation 5G networks, wher e the goal is to deliv er up to 1 0 gigabits per second of
data to the end user, a 1 00x increase over today's data rates, the proposal is to mov e to 28 gigahertz to facilitate
this essentially mov ing to where there is av ailable spectrum, so nex t generation 5 G networks mov ing up the
frequency spectrum.
Another example is cellular backhaul or point-to-point systems where next generation sy stems are mov ing up to
V band and Eband frequencies, 60 gigahertz and 7 7 gigahertz respectiv ely from more traditional microw av e
frequencies, again so that more information can be carried ov er these communications channels.
The second reason communications channel has moved to higher frequencies best illustrated by an automotiv e
ex ample is because higher frequencies support bet ter accuracy measurements in smaller form factors. Many
current Advanced Driv er Assistance Sy stems operate at 24 gigahertz, but are now mov ing to 7 7 gigahertz. At 7 7
gigahertz, wavelengths are shorter, thus supporting smaller antenna designs, while also en abling more precise
measurement resolution and thus superior collision av oidance sy stems.
The second fundamental point relative to the frequency spectrum is that irrespectiv e of which frequency is used,
just about all communication receiv ers shift the information carried in the communications channel, down to
lower frequencies, before conversion into the digital domain to facilitate digital signal processing, and bringing the
information down usually happens in one or two steps. Meaning there is RF signal conditioning at intermediate
frequencies within these sy stems. This means that y ou can have a play or position in each of these applications at
the lower RF frequencies, ev en if y ou are not inv olv ed at the higher frequencies.
We here at ADI hav e historically been focused on developing high performance RFICs, operating to about the 1 0
gigahertz or 1 5 gigahertz point. At these lower frequencies, ADI has just about full product coverage from antenna
to bits, a position that greatly lev erages our strength in d ata conv erters that Dav e talked about earlier. The
intensity of our product cov erage is represented by the intense green bar, as shown on the chart.
Our current portfolio of products has established very strong customer and technology positions and suppor ts our
rev enue stream well north of $200 million. While more recently we'v e been inv esting in higher frequency
solutions, our current product portfolio is comparatively lighter at the higher frequencies. If an aggregate I was to
represent this from left to right, our intensity of coverage would look as shown on this chart. Strong at the lower
frequencies as prev iously outlined, but less complete at the higher frequencies, which brings me to the Hittite
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Analyst Day
Corrected Transcript
17-Jun-2014
acquisition we announced early last week. Using the sam e chart and now ov erlay ing the intensity of Hittite's
product and solution cov erage, we would see the following. They 'v e traditionally worked at much higher
frequencies. Their position which includes ov er 1 ,000 standard products complements our position su ch that
jointly we now hav e strength across the entire frequency spectrum.
We both participate in similar end markets, so from a customer point of v iew, this makes for a v ery attractiv e
supplier, one who can prov ide complete signal chain solutions which i s what many of our customers are now
looking for.
In addition, deliv ering complete solutions facilitates the ev olution of these sy stems and the appropriate
optimization of signal change over time for performance, size, and cost reasons. So this acquisitio n of Hittite can
really be v iewed as an acceleration of the inv estment trajectory we were already on. The acquisition accelerates
our capabilities at v ery high frequencies in end markets that we really cared about such as industrial and
instrumentation, co mmunications infrastructure and automotiv e. That is what made the Hittite acquisition
attractiv e to us, and why we are really v ery ex cited about the acquisition.
So in summary , we are ex panding our capabilities across the entire RF spectrum. We are buildi ng on our ex isting
ex pertise and customer position. By becoming a more complete supplier, we are accelerating our growth prospects
and addressing the trend amongst our customers to look for more complete solutions from their suppliers. These
are tough, high performance analog and mix ed signal challenges, challenges that call out for highly innov ativ e
solutions, which have high barriers to entry. This is what our customers wanted us. We believ e the challenges are
ideally matched to what ADI stands for, in te rms of engineering ex cellence, and are looking forward to rapidly
growing our position in what are core markets for ADI.
So, thank y ou v ery much for y our time and I'll hand it ov er to Dav e to complete this first section of the
presentation.
................................................................................................................................................................................................................................
David A. Zinsner
Vice President, Finance and Chief Financial Officer, Analog Devices, Inc.
Good morning, ev eryone. Thank y ou for coming to the ADI Analy st Day . Although, some of y ou – Chris Danely
specifically may be mistaking me for Ben Affleck, I'm actually Dav e Zinsner, ADI's CFO and I'm here to giv e y ou a
temporary repriev e from the guy s that sound like a Lucky Charms Leprechaun, couldn't resist.
All right, before I get into the financial picture for ADI, we spend one slide talking about the Hittite acquisition .
Peter already illustrated the importance of high performance RF, and kind of a strategic rationale for the
acquisition, and so I just wanted to go through the strong financial reasons for this transaction as well.
Last week, as we told y ou, our advisors have indicated that we'll get regulatory approval, relatively quickly . So, we
ex pect to close the transaction by the end of the third quarter. In the fourth quarter, we'll already see the financial
benefits. We ex pect the transaction to be immediately accretive to gross margins, operating margins, and earnings
per share, ex cluding acquisition-related ex penses.
In fact, the transaction should be accretiv e to fourth quarter 201 4 earnings by 4% to 6%. In 201 5, it will be
accretive into the mid single digits – I am sorry, into the high single digits as a percent, and in 201 6 into the mid teens.
We spend a significant amount of time identify ing the right acquisition, because as we told y ou in the past, we
hav e a v ery high bar. Hittite is one of the v ery few co mpanies that ex ceeds that bar on multiple dimensions.
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Analog Devices, Inc. (ADI)
Analyst Day
Corrected Transcript
17-Jun-2014
This is a chart, I'm sure most of y ou are familiar with, 7 1 % of our rev enue comes from categories where we lead
the market. But as Dick and Peter hav e already illustrated, and the rest of the guy s will show you over the nex t few
hours, we're combining a host of technologies into products that don't really conform to any one semiconductor
category .
For ex ample, the transceiver, as a conv erter, as an RF dev ice, where do we put it? So while we'v e shown y ou this
chart frequently, we'll be phasing out the reporting of rev enue by technology to instead focus investors on revenue
by end market. We think that the end market presentation really illustrates better what we're try ing to do as a
company . That is to fo cus on the complete sy stem of signal processing, and solv e, what is many times a v ery
complex problem for our customers.
Ov er the past few y ears, we'v e made great strides in retargeting our strategy to focus on what we call the B2B or
the business-to-business part of the market. This includes the areas of industrial and healthcare, communications,
infrastructure, and automotive. While we continue to inv est in consumer, it's v ery selectiv e, and v ery targeted.
So while this has been the right thing for our strategy, you can see that the exit of some of the consumer drov e the
total company to grow at 3%, despite a 6% growth rate in our focus markets. We believ e, we hav e right sized the
consumer business. In addition, the heav ier inv estments into the B2B space has just started to translate into
rev enue. Mike, Mark, Martin, and Thomas, which kind of breaks up the alliteration there, will tell y ou more about
some of the ex citing opportunities later.
What I can tell y ou now is that we believe that the best is y et to come for these businesses. And that giv es us more
confidence in our ability to grow it two to three times real GDP. Of course, assuming it's positiv e, it's not going to
be multiples of negative. While this may look like some geological graph of the Ear th's crust, it's actually a chart
we call the v intage chart. ADI has been using this analy sis for decades to monitor the sustainable v alue of our
innov ation.
Ev ery quarter we look at product revenue based on the y ear the product was released. The business-to-business
applications where we focus have very long life cycles. And by providing solutions to customers with sustainable
innov ation adv antages, we enjoy the benefits of selling those products for many , many y ears. In fact, in some
way s, this may look a lot like a bond portfolio chart. Ev ery y ear's products provides an annuity or in other words, a
rev enue stream that can go on for decades. This is really the power of our model. We are not susceptible to
perturbations in any one customer or in any one product.
We're obv iously v ery proud of our financial ratios through a combination of shift into higher margin businesses
like industrial and communications infrastructure as well as structural improvements like the closing of two of our
four fabs. We hav e dramatically improved our gross and operating margins. Gross margins, which back at the last
Analy st Day nev er really got abov e 60% or so, are now consistently in the mid -60%s.
Operating margins, which had historically been in the mid 20%s, now ex c eed 30%. We believe that the continuing
focus on meeting our customers' requirements through innov ativ e and elegant solutions is what allows us to
sustain these ratios in the y ears to come.
We take that and lev erage our superior operating metrics to driv e shareholder v alue through a commitment to
return 80% of our free cash flow in the form of div idends and share repurchases. In the last 1 0 y ears, we'v e
returned more than $7 billion to shareholders, to accelerate inv estors' returns. We're committed to thes e
programs and to the goal of returning 80% of our cash flow in future y ears.
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Analog Devices, Inc. (ADI)
Analyst Day
Corrected Transcript
17-Jun-2014
We'v e fundamentally shifted our profile of our business to improve mix and we hav e combined that with a lower
cost manufacturing model and a more efficient expense structure. As a result, we're improving our financial model
that we prov ided y ou at our last Analyst Day in 201 0. We ex pect gross margins, which we originally modeled at
62% to 65% in 201 0, to now be in the range of 65% to 68%.
Operating margins, which we modeled at 3 0% to 33% in 201 0, should now be in the range of 32% to 36%. As y ou
know, the power of our model is the significant cash flow generation, and we ex pect free cash flow, as we'v e
modeled here, to run in the range of 28% to 32%. Of course, ultimately, for inv estors, y ou care about earnings, and
so, we're going to put a stake in the ground here and commit to drive those earnings to grow in the range of 8% to
1 5%.
We believ e we hav e four basic lev ers to pull, in order to achiev e that growth. As y ou'll hear ofte n at this
conference, y ou'v e already heard a little bit so far, we believe, we can achieve meaningful organic growth. In fact,
we're targeting to grow, as I mentioned before, a two to three times the rate of real GDP. And that's the first lev er
we pull, but it isn't the only lev er we hav e. We'll also accelerate earnings by making periodic, smart and strategic
acquisitions and as I mentioned before and Peter has mentioned before, our first one, Hittite, is already underway.
We believe that we can continue to get leverage in our cost structure as illustrated by the raising of our model to
the 32% to 36% that I mentioned before. And lastly, we'll continue to make opportunistic purchases of our stock to
push up earnings ev en further.
We think this is powerful and compelling and we commit to doing anything at our means to improv e our returns
for y ou, the inv estors; and to that end, we're also modeling to grow the div idends at a rate of 5% to 1 0% and
whether we hit the high end of the range or the low end of the range on div idend growth, is really mostly
dependent on the trade-off between the buybacks and the dividends to meet the goal of returning 80% of our free
cash flow.
And so, we're going to do something that I don't think is v ery common, I'm not sure it's done at all in the
semiconductor space, although it's pretty common in other industries, we're actually going to put an EPS target
out there of $4 to $5 and we'll target to hit that in the 2020 timeframe. Of course, a lot can happen obv iously in
that time, first of all by then, I'll be known as the Ben Kingsley of semiconductors and not the Ben Affleck of
semiconductors. And of course, the cy cle can alway s play a part in determining whether we're successful. But I
think by putting a number out there I think it giv es y ou, our inv estors, a sense of where y ou want to take this
amazing company and I think for us, it really crystallizes across the entire company, where we want to be. And so,
now it's up to us to ex ecute the things necessary to get there.
I'm personally really encouraged by the opportunities we have, and I look forward to reporting success to y ou in
2020, likely to be our next Analyst Day . And we believe that's our future, obviously, which is already in progress.
And so with that, V ince, Dick, I guess Peter and I will answer any questions that y ou have. I'll preemptively answer
the first question. I'm still with Jennifer Garner. So thank y ou. So I think y ou can come up, V ince, if y ou want.
................................................................................................................................................................................................................................
Vincent T. Roche
President, Chief Executive Officer & Director, Analog Devices, Inc.
I'll keep y ou guy s honest.
................................................................................................................................................................................................................................
David A. Zinsner
Vice President, Finance and Chief Financial Officer, Analog Devices, Inc.
Okay , good.
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Analog Devices, Inc. (ADI)
Analyst Day
Corrected Transcript
17-Jun-2014
QUESTION AND ANSWER SECTION
A
Ali Husain
Director-Investor Relations, Analog Devices, Inc.
We hav e a microphone going around. Any questions in the audience? V iv ek, get y our microphone. Y eah.
................................................................................................................................................................................................................................
A
No, it's [indiscernible] (58:00)
................................................................................................................................................................................................................................
Vivek Arya
Analyst, Bank of America Merrill Lynch
Q
Thanks for the presentation. I appreciate it. I actually hav e a near-term question and then a longer-term. So on
the near-term besides just orders and channel resale et cetera, what else, V ince, do y ou have on y our dashboard to
tell y ou how demand is progressing? And what is that crystal ball telling you for the nex t couple of quarters? And I
hav e a follow-up on the longer-term.
................................................................................................................................................................................................................................
Vincent T. Roche
President, Chief Executive Officer & Director, Analog Devices, Inc.
A
Y eah, good question. So the things we pay attention to, obviously, things we report back to y ou around bookings,
rev enues, we pay a lot of attention to our new product pipeline. We pay a lot of attention to what's happening in
the opportunity pipeline of the company . We pay a lot of attention to what's happening in terms of getting
products to market and looking at the activ ity rates on new products as customers use them and bring them to
market. So y ou'v e got a business of this complexity that's driv en by innov ation. New products are a huge part of
the activ ity. Because you know as I'v e said, we believ e that superior innov ation brings superior results and how
well we do in terms of new product design, definition design delivery is a v ery, v ery critical part of the company 's
organic growth story. So those are the things we pay more and more attention t o. And as I said in the presentation
that Dick talked about, we are focusing our innov ation more purely as well in terms of the applications that we
think are going to make a big, big difference to this company in the future.
................................................................................................................................................................................................................................
Vivek Arya
Analyst, Bank of America Merrill Lynch
Q
Y eah. And as a longer-term question, ADI has v ery high market share in some key categories like conv erters,
amplifiers, et cetera. So does that become a help or a hindrance as y ou look at where the growth opportunities
are? Like do customers push back and say , look, y ou hav e enough market share or does it actually help y ou
strengthen y our competence in number of these growth opportunities that y ou mentioned?
................................................................................................................................................................................................................................
Vincent T. Roche
President, Chief Executive Officer & Director, Analog Devices, Inc.
A
Y eah. I think in the signal processing space y ou can never have enough technology or enough product cov erage.
We're cov ering tens of thousands of customers as Thomas was talking about. So hav ing strength in those domains
is becoming more and more critical to our customers. I think one of the things we see is as well v ery clearly is that
our customers are placing their bets for the v ery long term in companies like the ADI. So I think hav ing strength
and hav ing a broad base that customers of all ty pes in all different markets can call upon is v ery , v ery important.
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Analog Devices, Inc. (ADI)
Analyst Day
Corrected Transcript
17-Jun-2014
So I think it helps, it certainly helps. And y ou'v e seen that as well ov er the past fiv e y ears, sev en y ears. We'v e
gained just about a point of market share per y ear for the last sev en y ears, which I think is ev idence that our
innov ation is strong, but also that customers are placing their bets in fewer and fewer places. The fragmentation of
the market is getting smaller and smaller I think in those critical places.
................................................................................................................................................................................................................................
Richard A. Meaney
Vice President, Products & Technology, Analog Devices, Inc.
A
And just to add that Dav e mentioned it, but many of the converters we dev elop become embedded into the sensors
that we're selling. For ex ample, our MEMS Sensors, inertial sensors, go all the wa y from detecting the motion to
prov iding the bits. So the converters are in there, which we categorize as the sensors. So the converters diffuse out
to multiple functions that we need including transceiv ers on the RF side and sensors on the signal conditio ning
side.
................................................................................................................................................................................................................................
Steven Smigie
Analyst, Raymond James & Associates, Inc.
Q
Hey , Dav e. Stev e Smigie from Ray mond James. Just a quick question within y our gross margin range. Is there –
are y ou more likely to trend towards the higher end of that range or the lo wer end? And are there particular end
markets right now that will driv e y ou in one direction or the other that y ou're starting to focus on?
................................................................................................................................................................................................................................
David A. Zinsner
Vice President, Finance and Chief Financial Officer, Analog Devices, Inc.
A
Y eah. Well, we're obviously in good shape right now with our guidance for this quarter coming up is to be in kind
of the mid 66% kind of range for gross margins. There's, mainly, we gav e that range as a function of the fact that
occasionally there's a cy cle, obv iously . And wh en we tune down the utilization lev els, that does impact us not
significantly , but does impact us. And so, that's kind of the bottom end of the range.
But what we're focused on is try ing to get to the top end of the range on a more sustainable basis. Obv iously , mix
is going to play a part of it. We're heav ily inv esting in the B2B space. Those generally do carry better gross
margins. We hav e a number of initiativ es internally . John's going to talk about some of the things going on in
manufacturing to improv e the cost structure within the manufacturing space.
We'v e done a number of things internally to help kind of improv e the efficiency of our pricing structure and so
those things will benefit us ov er time. So the ultimate goal is obv iously to be more s ustainably at the high end. I
put the low end in there just because I recognize that we are in a cy clical business and when those cy cles do turn
down, we do hav e to adjust our wafer starts and that does affect the margins on a temporary basis.
................................................................................................................................................................................................................................
Doug Freedman
Analyst, RBC Capit al Markets LLC
Q
Great. Doug Freedman, RBC. Thanks for taking my question guy s. Can y ou show the v intage chart and help
ex plain why it is that y ou're seeing less revenue contribution from new products today than y ou were seeing at th e
beginning of that v intage chart?
................................................................................................................................................................................................................................
David A. Zinsner
Vice President, Finance and Chief Financial Officer, Analog Devices, Inc.
A
At the v intage, beginning of the v intage chart the lines are like v ery thin, actually, Doug. It's not, there were some
y ears and there always will be y ears where sometimes more products hit than others. But I don't think there's a
trend in there. I think it's dependent on the crop of products and where we're pushing the businesses.
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Corrected Transcript
Analyst Day
17-Jun-2014
The other thing for us is in the middle tiers, some of that was more a function of the consumer, the consumer does
get the benefit of newer products on a more consistent basis because they 're constantly churning, and we're
mov ing towards the B2B space which has got longer life cy cles. And so those thi ngs take a little bit of time one, to
run up, and then a longer period to get into that period, where it's in a thicker part of the line chart. But we look at
this all the time. We don't see any thing sy stemic within the business that will suggest we're get ting any less
productiv ity out our R&D group than we were fiv e y ears or ten y ears ago.
................................................................................................................................................................................................................................
Q
Doug Freedman
Analyst, RBC Capit al Markets LLC
Great. Thanks for that. When y ou look at pricing in the marketplace, y ou guy s introduced products that quite
often really don't hav e alternativ e solutions from time to time. How do y ou price y our product in that market
scenario? And then how do y ou price it in terms of when y ou do run into a competitor in the market? Some of the
things that y ou're selling, one of the pro ducts y ou've talked about earlier in 9625, I believ e this is nearly a $600
product. So can y ou giv e us a sense of how y ou go about that? Thank y ou.
................................................................................................................................................................................................................................
A
Vincent T. Roche
President, Chief Executive Officer & Director, Analog Devices, Inc.
Look, we'v e clearly got an innovation story. So we try to price our products to the v alue of the innov ation. We'v e
been in this market for decades. We'v e got a good sense for how to v alue the products. And more and more, we are
teaching our people to be a lot more v igilant in terms of not only establishing the price for the v alue that we create,
but also to hold that v alue as long as we can.
I think when we get into competitiv e situations, we got to respond. But I think the key is y ou'v e got to hav e
products and innovation that our customers v alue, y ou'v e got to bring it to the market early . And when y ou do
that, we know and the academics know, ev ery body knows that y ou ultimately , first, the market grabs the lion's
share of the av ailable profit pool. And y ou know our customers as well, the products we're building are complex ,
they are sophisticated products. They don't lend themselves to commoditization, so the key is to get products to
market fast, get into the innov ation stream of the customer. And then the pricing is v ery , v ery stable I think
throughout the lifecy cle of the product.
................................................................................................................................................................................................................................
A
Richard A. Meaney
Vice President, Products & Technology, Analog Devices, Inc.
Just to add to that, the continuing to inv est in the R&D giv es us the way to actually increase our v alue to the
customer. And Martin is going to talk in the communications space about the integrated transceiv ers that I
mentioned. And there's a case of where we'v e moved from discrete components to a lot of the v alue or the cost to
the customer in terms of the more c omplete solution, that's increased our pricing.
................................................................................................................................................................................................................................
Q
Just a quick question. If y ou could provide an update on China LTE infrastructure, what y ou'v e been seeing ov er
the last sev eral months and potentially towards the back half of the y ear? Thank y ou.
................................................................................................................................................................................................................................
A
Vincent T. Roche
President, Chief Executive Officer & Director, Analog Devices, Inc.
Okay . Martin, y ou want to take that one? Y ou can come up here if y ou want.
................................................................................................................................................................................................................................
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Analog Devices, Inc. (ADI)
Corrected Transcript
Analyst Day
17-Jun-2014
A
Martin Cotter
Vice President, Communications Infrastructure, Analog Devices, Inc.
I'll take it in the nex t session.
................................................................................................................................................................................................................................
A
Y eah, I think that's...
................................................................................................................................................................................................................................
A
Richard A. Meaney
Vice President, Products & Technology, Analog Devices, Inc.
Y eah, that's a good idea. We do hav e communications [ph] infrastructure (1 :06:55) cov ering. Y eah.
................................................................................................................................................................................................................................
A
[indiscernible] (01 :06:57 )
................................................................................................................................................................................................................................
Romit J. Shah
Analyst, Nomura Securities International, Inc.
Q
Thanks. Romit Shah, Nomura. When I look at y our mix , it seems almost identical to Linear Tech, and y et y our
margins are 1 0 points lower. So I was hoping y ou guy s c ould talk about what the differences are, is this just the
difference between being a signal processing company v ersus a power management company? In other words, is it
ASPs, is it cost structure? And I say that because the gross margin guidance y ou'v e giv en a 65% to 68%, giv e it
y our mix seems like it's conserv ativ e?
................................................................................................................................................................................................................................
David A. Zinsner
Vice President, Finance and Chief Financial Officer, Analog Devices, Inc.
A
I think it's a difference between being a $3 billion company and a $1 .5 billion. I mean there's clearly markets
where we get plus 80% gross margins in. Probably we could skinny it down to $1 .5 billion and probably get 80%
gross margins. But we're going after a broader set of customers, a broader set of market. And I think that's what
allows us, or what driv es us into this kind of mid to high 60%s. Hav ing said that, I'll take mid to high 60%s all day
long. Quite honestly, it's good margin. There aren't too many S&P 500 companies that get those kind of margins.
Throws off a lot of cash flow and driv es a pretty good return.
................................................................................................................................................................................................................................
Romit J. Shah
Analyst, Nomura Securities International, Inc.
Q
Okay . And then a follow-up on the EPS accretion from Hittite, y ou mentioned high single digit in fiscal 201 5,
going to mid teens in 201 6. What accounts for the, I guess for the step-up in accretion? Is it, are y ou including
rev enue sy nergies in 201 6 or is there something else?
................................................................................................................................................................................................................................
Ali Husain
Director-Investor Relations, Analog Devices, Inc.
A
Sorry , before you answer that question, so we are actually in the process of tryi ng to close the deal. So what we're
going to do is a matter of good housekeeping as we'll certainly answer this question. And then if any body else has
any questions about the Hittite deal, I suggest we do them now after Romit's question. And then once we r oll-off
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Analog Devices, Inc. (ADI)
Corrected Transcript
Analyst Day
17-Jun-2014
that topic, we won't be able to come back to it. So, go ahead and answer the question. And then we'll stay on the
Hittite topic.
................................................................................................................................................................................................................................
A
David A. Zinsner
Vice President, Finance and Chief Financial Officer, Analog Devices, Inc.
Okay . All right, good. It's really just a function of – there are some things that will take a little bit longer to execute
on. And so our ex pectation is some of the things won't be in place until 201 6 and that's really the driv er of the
step-up in the accretion from 201 5 to 201 6. None of the numbers I gav e y ou included any rev enue sy nergies,
although quite honestly we do ex pect to get some beginning in 201 5, but we – for conserv atism purposes, we
eliminate them from that analy sis that we gav e y ou.
................................................................................................................................................................................................................................
A
Ali Husain
Director-Investor Relations, Analog Devices, Inc.
So, any more questions on the transaction? Looks like John has got a question back there.
................................................................................................................................................................................................................................
John W. Pitzer
Analyst, Credit Suisse Securities (USA) LLC (Broker)
Q
It's not on the transaction Ali, but...
................................................................................................................................................................................................................................
Ali Husain
Director-Investor Relations, Analog Devices, Inc.
A
Well, we should stick on it. If any body else has any questions on the transaction, we should stay on it. We won't be
able to come back to it afterwards. Ambrish?
................................................................................................................................................................................................................................
Ambrish Srivastava
Analyst, BMO Capital Markets (United States)
Q
It's not on the numbers, but I was just try ing to understand how does the Hittite deal, looking out ahead, how does
it change the competitiv e dy namics? And also, are y ou going to see a newer set of competitors? And are y ou
thinking of products that would be developed jointly two y ears, three y ears out from now or is it just a plug and
play , and on the same board y ou can hav e both the products?
................................................................................................................................................................................................................................
Vincent T. Roche
President, Chief Executive Officer & Director, Analog Devices, Inc.
A
I'll let [indiscernible] (1 :1 0:20) to answer that.
................................................................................................................................................................................................................................
Peter Real
Vice President, High Speed Products and Technology, Analog Devices, Inc.
A
Y eah. I'll take a shot at answering that one. If y ou remember that chart I showed y ou, we were already on a
trajectory where we're moving up the frequency spectrum. So we hav e fairly intense coverage at lower frequencies,
and we're inv esting to cover at higher frequencies. So this accelerates our overall position in a hurry . And hav ing
put that position together then, when y ou talk to customers as a more complete supplier, you can be part of and a
central park of the conversation about re -architecting a solution over time because y ou have all the building blocks
within that solution. So we ex pect it first to come together one plus one. But then ov er time there to be clearly a lift
through that effect by being a more complete supplier with our end costumers. That's what we ex pect to happen
ov er time.
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Analog Devices, Inc. (ADI)
Corrected Transcript
Analyst Day
17-Jun-2014
Now, how that play s out over time? We need to get into the deal and work it out. But we ex pect that ov er time, it
giv es us that suite of capabilities. Fundamentally, this was a capability deal, accelerating our position with a suite
of capabilities rather than pursuing it organically at a slower rate. That's what we ge t to in a hurry .
................................................................................................................................................................................................................................
A
Vincent T. Roche
President, Chief Executive Officer & Director, Analog Devices, Inc.
We also got more than 1 ,000 products that we bring to market pretty much immediately . So we hav e a sales
channel, an applications channel that is so much bigger than Hittite. That's an immediate benefit that we will get.
So I think between what Peter has said and the fact that we'v e got this channel leverage, we'll get some good uplift
in this area in the short-term.
................................................................................................................................................................................................................................
A
Ali Husain
Director-Investor Relations, Analog Devices, Inc.
Chris, did y ou hav e a question?
................................................................................................................................................................................................................................
Q
Chris B. Danely
Analyst, JPMorgan Securities LLC
Y es. On Hittite?
................................................................................................................................................................................................................................
A
Ali Husain
Director-Investor Relations, Analog Devices, Inc.
Y eah.
................................................................................................................................................................................................................................
Q
Chris B. Danely
Analyst, JPMorgan Securities LLC
So, a question for Ben.
................................................................................................................................................................................................................................
A
Ali Husain
Director-Investor Relations, Analog Devices, Inc.
Kingsley or Affleck?
................................................................................................................................................................................................................................
A
David A. Zinsner
Vice President, Finance and Chief Financial Officer, Analog Devices, Inc.
Y eah. I guess by 2020, I'll be the Gandalf of the cell site. So Gandalf and Ben Kingsley here.
................................................................................................................................................................................................................................
Ali Husain
Director-Investor Relations, Analog Devices, Inc.
A
Well, I'v e already got the Kingsley here.
................................................................................................................................................................................................................................
Chris B. Danely
Analyst, JPMorgan Securities LLC
Q
Can y ou talk about how much foreign cash are you using for the Hittite acquisition and what instrument y ou guy s
are using to do that? And then also – just a quick follow up, is any of the $4 to $5 in ev entual earnings from
acquisitions or just organic?
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Analog Devices, Inc. (ADI)
Analyst Day
David A. Zinsner
Vice President, Finance and Chief Financial Officer, Analog Devices, Inc.
Corrected Transcript
17-Jun-2014
A
$4 to $5 does include accretion associated with acquisitions for sure. Although, I don't think we'v e had a
significant roadmap of acquisitions to lay er in there. I think most of it comes from organic and lev erage.
And with regard to the cash, we're first going to fund this with $2 billion of debt, and $500 million of cash that is
essentially $500 million of cash that is on Hittite's books. Ev entually that cash or that debt does get paid down
and it does come from the worldwide cash reserves. We do ex pect that the U.S. cash balance at the end of the day
will be similar to where it is today , or y ou can interpret that the way y ou want. We do that by mobilizing a
structure that we hav e in place, legal entity stru cture that we hav e in place, which has significant substance
outside of the U.S., which not a lot of companies can claim, significant manufacturing in Ireland, significant
manufacturing in the Philippines, significant design across the globe with a signifi cant portion of that being in
Ireland as well. And so, that substance allows us to do things in some cases that some others are not able to do to
fund their repay ment of that debt through global cash.
................................................................................................................................................................................................................................
Ali Husain
Director-Investor Relations, Analog Devices, Inc.
A
All right. So, I will just add that we probably down to the last couple of minutes to the Q&A, so prioritize
accordingly .
................................................................................................................................................................................................................................
Q
Great. I hav e a question about deals in general, Hittite included, what's the mindset of the sellers right now that's
enabling us to see the ex plosion in M&A in semis. One could argue that scale is more important, but scale was
more important two y ears ago. Is it the v aluations are up a little bit? So, if I'm getting a premium on top of
v aluation, I feel better about selling? Is it – why do y ou think we're seeing all these deals? Why are companies like
Hittite finally willing to sell?
................................................................................................................................................................................................................................
David A. Zinsner
Vice President, Finance and Chief Financial Officer, Analog Devices, Inc.
A
Well, I'll take a crack at this and V ince can add color, if he wants. I don't think it's – v aluations are up and down all
the time. There's plenty of times where this – there're other points in time where v aluations probably seemed
attractive to sellers. I think this is more a function of th e fact that it is increasingly more challenging to the point of
almost impossibility for companies of a certain size now to compete bey ond the position they hav e today .
In fact, as we announced this acquisition, we talk to a lot of our customers and a lot of the customers said to us,
wow, this completely opens an opportunity for them because they were just too small and just a one -off kind a
solution. They were not going to be able to bring a broader technology resource to us and complex solutions to us
and so we just couldn't get there with them. And so, now suddenly it make sense because it's part of a larger
company and that's a function of the fact that increasingly our customers are pushing off a lot of the hardware
design to us as opposed to doing it themselv es.
And I think, that's the primary reason. These smaller companies are challenged in terms of growth because of
that. They got the product. They just can't get it to the customers that the customers won't take the risk.
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Analog Devices, Inc. (ADI)
Analyst Day
Vincent T. Roche
President, Chief Executive Officer & Director, Analog Devices, Inc.
Corrected Transcript
17-Jun-2014
A
That's good, Dav e. I think, we're looking as a company for companies that hav e products and technologies with
v ery high barriers to entry and with sustainable lifecycles and v ery, very good re turn. So, from our perspectiv e, I
don't care what's going on in the market there, we'v e looked at Hittite and admired Hittite for many , many y ears.
So they are one of the few companies out there that actually exceed the bar that we set, the v ery, v ery high bar. So
that's how we v iew Hittite in the kind of the sea of options out there.
................................................................................................................................................................................................................................
Ali Husain
Director-Investor Relations, Analog Devices, Inc.
A
I think that gentleman had a question.
................................................................................................................................................................................................................................
Q
Y eah. Thanks, Ali. V ince or Dav e, there're a couple of questions around the longer term growth rate of 2x to 3x
kind of GDP. Sort of what's the role of traditional consumer electronics in that growth rate, especially in some of
y our health monitoring, the IP finds its way into things like wearables or smartpho nes? And also around that
growth rate, if y ou look at y our non-consumer growth rate over the last fiv ers years, it's kind of approximated that
2 times to 3 times GDP number.
................................................................................................................................................................................................................................
Vincent T. Roche
President, Chief Executive Officer & Director, Analog Devices, Inc.
A
Right, right.
................................................................................................................................................................................................................................
Q
With all the trends y ou've talked about today, why wouldn't that bucket actually see an accelerating growth rate, as
we mov e forward?
................................................................................................................................................................................................................................
Vincent T. Roche
President, Chief Executive Officer & Director, Analog Devices, Inc.
A
Well, it might. We ex pect consumer to contribute more in the future, where I believe, as I'v e said on the couple of
earnings calls recently, I think we're beginning to behemoth in terms of the deceleration, if y ou like or the decay of
our consumer business. So it's taken us a while to really get the organization properly sized. We'v e got a great
team of people working in the space now. We're play ing with the right customers and we'v e been working on some
pretty exciting technologies ov er the last two y ear, three y ears and products that – if they – I believ e, we'll get
them to market and we'v e got sev eral of them in the market at the present time in the design phase. And if the
markets behav e and the opportunities there will grow, I think pretty well.
But, y ou know, as Dav e said earlier, it's a right sized inv estment, a right size business and I think it can contribute,
based on the product lifecycles, should be able to contribute decent growth for the company , bey ond the kind of
the lev els that we'v e told y o u in the nex t two, three y ears.
................................................................................................................................................................................................................................
Ali Husain
Director-Investor Relations, Analog Devices, Inc.
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A
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Analog Devices, Inc. (ADI)
Corrected Transcript
Analyst Day
17-Jun-2014
It looks like C.J. has got the last question here for this session?
................................................................................................................................................................................................................................
Q
C.J. Muse
Analyst, International Strategy & Investment Group LLC
Y es. It's a follow-on there. As you think about and I guess the questions for Dav e or Ben here, as y ou think about
two to three times real GDP growth, I'm curious what changes that might hav e on y our manufacturing strategy in
terms of outsourcing, in-sourcing and how we should think about CapEx trends going forward?
................................................................................................................................................................................................................................
A
David A. Zinsner
Vice President, Finance and Chief Financial Officer, Analog Devices, Inc.
Y eah. I think we're in pretty good shape. John, probably will go through the kind of the footprint of our
manufacturing, but we're running kind of in the mid -7 0s in utilization. So we hav e plenty of room on the front end
internally. Once we get to a capacity level there, should that happen, we hav e plenty of clean room space actually .
So, we can ex pand with relatively limited CapEx and get ev en more wafer starts from the through the front end
internally. We also lev erage obviously best-in-class foundries out there. We ty pically pick ones that have plenty of
capacity as well that we can rely on. And, so as a result, I wouldn't ex pect us to run into a significant situation in
terms of wafers.
And then, on the back end, we'v e been just v ery methodically expanding that facility. It's relatively inex pensiv e in
the Philippines to do that. And so, we're – I think we're in pretty good shape and we hav e plenty of headroom.
We're actually just in process of finishing up our fourth manufacturing building in the Philippines, which will
dramatically improv e the capacity .
I did hav e also one question. Is the leprechaun comment g oing to influence my performance [ph] rev iew process
(1 :1 9:36)? Okay . I just wanted to make sure.
................................................................................................................................................................................................................................
A
Vincent T. Roche
President, Chief Executive Officer & Director, Analog Devices, Inc.
When did y ou start talking to [indiscernible] (1 :1 9:42)?
................................................................................................................................................................................................................................
Ali Husain
Director-Investor Relations, Analog Devices, Inc.
Great. All right. Well, thanks ev ery one. We'll take a short break and reconv ene at 1 0 am. Thanks.
................................................................................................................................................................................................................................
Vincent T. Roche
President, Chief Executive Officer & Director, Analog Devices, Inc.
All right. Thanks.
................................................................................................................................................................................................................................
Ali Husain
Director-Investor Relations, Analog Devices, Inc.
All right. Do we hav e ev erybody back in the room? We're about ready to get started. I know they have good food at
the NASDAQ, so I don't blame y ou for being out there.
Y eah, let's all come on in. All right. So – let's see, I think let's get started. So we just heard from Dick Meaney and
Peter Real about the great technology position that ADI has and how we're furthering it. And we also heard from
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Analog Devices, Inc. (ADI)
Analyst Day
Corrected Transcript
17-Jun-2014
Dav e about the financial model and the v arious levers that we hav e to drive, not only EPS to $4 to $5 by 2020, but
also a new hairsty le for Dav e as he tries to become Ben Kingsley in a few y ears.
So now we'll turn the floor ov er to our growth panel. We'll start off with our V P of Automotive, M ark Gill. And he'll
start off and then we'll segue into our other end markets. Come on up.
................................................................................................................................................................................................................................
Mark Gill
Vice President, Automotive, Analog Devices, Inc.
Well, good morning, everybody. My name is Mark Gill and I'm responsible for the Automotive Business at Analog
Dev ices, which is currently just under 20% of our company rev enue. So my personal inv olv ement in the
Automotive Business starts at around 2000 when I was looking to apply DSP products to audio processing. And
I'v e been increasingly inv olv ed with all aspects of the Automotiv e Business since that point in time. So we're in
ex citing time in the Automotive Business as the electrification of the v ehicle is driv ing tremendous innov ations in
safety , in comfort, and in economy . So, broadly speaking, electrification means deploy ing electrical dev ices to
replace the mechanical dev ices throughout the v ehicle, and these electrical dev ices are controlled by
semiconductors. These replacements can be from simply sensing fluid levels all the way to a fully electric p owered
engine.
So let's start the story at the beginning with the battery. Going green is in v ogue, but today it's still an option. ADI
can see the day where mandates for v ehicle emissions are no longer needed because there are no polluting
emissions. Waiting in line at the gas station is just a story told at the Thanksgiv ing dinner.
Let me tell y ou how we think we're going to get there. Around 1 0 y ears ago, ADI started work with European car
manufacturers discussing rising pollution lev els from diesel en gine v ehicles, while their v ehicles were idling at
traffic lights. From these early conv ersations, the idea was dev eloped of a battery monitoring sy stem that will
enable cars to frequently stop their engines and y et be absolutely confident that they 'll be able to restart.
Unfortunately, with every restart and insufficient driv ing time, the charge in the battery gets depleted. So it's a
fine line between stopping the engine sufficiently to make an impact on pollution reduction and y et maintain
sufficient charge in the battery to be absolutely sure that the car would restart. The more accurately the sy stem
could measure the charge of the battery, the more sav ings are possible, and thus start -stop sy stems were born.
Now as ADI continues to roll out our third generation of automotiv e qualified battery monitoring ICs, we're
enabling stop-start technology in all geographies, delivering improvements in ov erall fuel economy and emissions
control.
In Europe, start-stop technology is found in nearly 50% of new v ehicles, and in North America recently Ford
announced that by 2017 start-stop will be found in nearly 7 0% of their new models. ADI estimates that in 2013 we
helped consumers save from burning 600 million gallons of fuel. If y ou prefer y our statistics in carbon diox ide,
that's 1 2,000 tons of CO2 sav ed from the atmosphere in one y ear by ADI. So how do we do that?
So we enable these sav ings through our latest battery monitoring ICs. They integrate high precision ADCs,
microprocessors, memory and v ehicle bus interface, all in a dev ice that's smaller than a dime coin and it monitors
the health of the battery to one -millionth of its original state. It's this lev el of precision and integration that
enables the max imum sav ings when implementing start -stop in a car.
Now for the majority of the v ehicles sold today are regular gas or diesel combustion engine powers the v ehicle
with a desire to increase fuel efficiency to achieve 55 miles per gallon in North America by 2025. Electronics are
increasingly playing a major role in improving the engine performance. In today's sophisticated engines, a v ariety
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Analog Devices, Inc. (ADI)
Analyst Day
Corrected Transcript
17-Jun-2014
of v ariables need to be accurately and reliably controlled and optimized for efficiency and low emissions through
dozens of sensors and actuators. This application is a perfe ct match for ADI's core strengths of precision signal
processing in amplifiers and converters, such as devices that may measure fuel pressure in fuel injection sy stems
or v alv e timing in cy linder deactiv ation.
Now the automotive industry is constantly changing itself, reinventing itself. 25 years ago, electric v ehicles were a
garage project for dreamers or for golf carts I guess. Today, electrification of v ehicle is in mainstream deployment,
and some of the more passionate people in this room probably own a hy brid or electric vehicles. ADI's lithium ion
battery monitoring ICs enable one of the most successful hy brid electric v ehicles sold today. On working alongside
with battery manufacturers, we will match our nex t generation of ICs to the industry 's most power efficient
batteries, which will deliv er longer driv e distances and shorter charge time.
Now I think this picture here which may suggest that the driver is going about 1 40 miles an hour, that'll be a great
way to segue into our safety sy stems. We're going to get there in a minute because clearly this driv er needs the
best safety sy stem possible.
So car manufacturers can also improv e fuel efficiency by reducing the weight of the v ehicle. A ty pical v ehicle
carries a wiring harness that weighs hundreds of pounds with enough wire to reach from this building to the lake
in Central Park. Reductions in the number of wires and connectors is highly desirable. ADI is collaborating with
OEMs worldwide to create an innovative low cost, lightweight vehicle bus to connect microphones, radio systems,
and audio sy stems. It's a really ex citing area where our technology is used, not just to replace more costly
electronics but also wiring and connectors as well.
The trend for greener v ehicles also has a significant impa ct on audio sy stems. As engines are downsized or
cy linder deactivation is used as a method to improve gas mileage, y ou may experience ugly tones being generated
from the engines. So this leads to the opportunity to electronically cancel the audio terms, an d through perhaps
ev en enhancing the sound through active noise cancellation and sound design. And these are being increasingly
deploy ed today on ADI shock audio processes, enabling both a quieter cabin and better fuel efficiency .
So let's change the topic back to safety sy stems. Today, ADI's MEMS accelerometers measure the deceleration of a
crash impact and send messages to the v ehicle safety sy stem to potentially fire the airbags. Last y ear, through
modules created by our customers, ADI estimates our MEMS safety products were inv olved in sav ing nearly 3,000
liv es. That's eight times a day we help someone return home to their families.
Howev er, in ADI, we can see the day when that v ery statistic becomes redundant. Accident-free driving is the goal
we're looking towards. And our strategy to get there is built on the three pillars: to predict, to prev ent, and to
protect.
First, to predict if an accident is likely and to warn the driv er accordingly , Adv anced Driv er Assistance Sy stems,
such as v ision and radar look out hundreds of y ards ahead of the v ehicle, prov iding direction, speed, and may be
ev en the object type ahead. Effectiv ely they prov ide the information that allows a computer sy stem to predict
what's coming in the upcoming moments.
At ADI, we lev erage our excellent RF technology, mixed signal technology , and digital signal processing to build
radar and v ision sy stems that can be used in a v ariety of way s to create a bubble around the v ehicle, a safety
bubble, to warn y ou of approaching threats from any direction. And as the v ehicle safety sy stems becomes more
sophisticated, the car can initiate braking or perhaps ev en change direction for y ou.
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Analog Devices, Inc. (ADI)
Analyst Day
Corrected Transcript
17-Jun-2014
The second pillar is to prev ent the accident using stability control sy stems. So simply put, based on speed or road
conditions, the v ehicle may not end-up going in the direction which you had intended. And for any body liv ing in
the v ast portion of the United States this past winter, I think the picture is v ery familiar. ADI's MEMS
accelerometer and gy roscope sensors monitor the actual mov ement of the car, perhaps during a spin or a slide.
And by comparing this motion with the intended direction, the car can control the brakes to try to bring y ou back
on to the intended path.
Now, sometimes even the best electronics cannot compensate the terrible road conditions or ev en unex pected
obstacles. And so the third pillar of our strategy is to protect the occupants as best as possible, using high -g
accelerometers to measure the crash and to determine if the airbags shoul d be deploy ed.
ADI is a world leader in all the core technologies associated with MEMS accelerometers and gy roscopes, which
allows us ultimate flex ibility to tune these sensors to a v ehicle target architecture. The industry 's driv e for
continuous integration of MEMS sensors demands capabilities in all these technologies and just amplifies ADI's
competitiv e strengths.
So recently y ou'd be reading headlines around autonomous driving with car manufacturers worldwide announcing
their introductory plans. So there are possible benefits to the additional working hours that I now hav e as I sit
behind the wheel. But to me, autonomous driv ing is about increasing safety and reducing the effects of the
number one reason for accidents. It's y ou and me. Human behav ior i s responsible for the majority of accidents,
perhaps driv ing too fast in the conditions, not looking in the mirror before changing lanes. Well, frankly , just
being distracted by the phone, the kids, the coffee, the radio, all these things just looking for y our attention.
Autonomous driving is the industry's umbrella strategy to strengthen the electronic safety bubble around the car,
and make bold steps towards an accident-free driv ing env ironment. To get that two things necessary , first we
must add undistracted ey es and ears that constantly look in all directions. This is achiev ed by increasing the
number of radar, v ision, lidar, ultrasonic, infrared, all sorts of sensors within the v ehicle, and each represents an
ex cellent ex ample of real-world signal proc essing that ADI enjoy s.
Second, and the real catalyst to achieve accident-free driving is connecting all of these sensors from ev ery car to
each other through a smart network. By knowing what the other v ehicles are doing, ev en before human ey es can
see them, car-to-car and car-to-infrastructure communications provide the insight to know what is ov er the crest
of the hill or allow to cruise closely and safely behind the v ehicle in front.
Now, to some of us that sounds may be either farfetched or a worrisome inev itability . The huge leaps towards
accident-free driving can be achieved by knowing the location and the trajectory of all the v ehicles around y ou and
by hav ing a safety sy stem that takes control faster than any human being can react. Lev eraging the co re
technology from our wireless communications business, ADI is working on way s to simplify the multiple antenna
data reception points in the car. Noting that I don't think traditional car radio architectures hav e the capacity to
support this new car to data communications requirements. It may be another decade or more before autonomous
v ehicles are broadly av ailable. But ADI intends to prov ide the critical enabling technologies for sensing and
communicating road safety in this multi-billion dollar semiconductor inev itability .
So when I first got inv olved with the Automotive Business some 1 5 y ears ago, my v ision of the future was limited
to a better sounding audio system. Hav ing spent the best part of the last decade inv olv ed with some of the most
creative thinkers in the industry, I see a different future, a future where not only are accidents rare and emissions
negligible, but one where we're challenging the v ery fundamental concept of driving a car through the application
of real-world signal processing.
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Analog Devices, Inc. (ADI)
Analyst Day
Corrected Transcript
17-Jun-2014
Thank y ou v ery much.
................................................................................................................................................................................................................................
Michael Britchfield
Vice President-Industrial & Instrumentation, Analog Devices, Inc.
These markets represent approx imately 45% of ADI rev enue. Before I begin talking about the growth driv ers
behind industrial revitalization, I'll say a few words on the div ersity of applications within industrial. I'll take y ou
through four major sub-segments, each of which we estimate will consume annually more than $1 billion of signal
processing technology in the nex t fiv e y ears.
Instrumentation includes equipments used to measure electrical signals, such as oscilloscopes and
communication signal testers and instruments measuring physical properties, such as determining the chemical
composition of compounds or monitoring the presence of oil and g as.
Factory automation such as seen in automotive assembly lines, distributed control sy stems, which monitor and
control parameters such as flow and pressure in oil refineries or food processing plants. Motor control and
robotics are all part of the automation segment. Automation also includes those products that measure occupancy
and presence in the building and those that control the heating, v entilation and air conditioning sy stems of these
buildings.
Energy usage and control is a critical factor across many end applications. But ADI's energy strategy focuses on
the $1 billion serv ed av ailable market in the electricity and gas, transmission, distribution and metering
applications.
The defense and aerospace sub-segments has been more headwind and growth driver in recent y ears for ADI and
most companies. However, there is significant demand for high performance signal processing throughout space,
av iation and defense communication sy stems and our inv estments in the last fiv e y ears hav e built a strong
pipeline.
In all these $1 billion segments, our deep relationships built over decades ensure that customers are telling us the
nature of our most critical future problems. Our deep sy stems understanding and technology leadership across
sensing, conversion, processing and connectivity means that ADI is uniquely positioned to be ahead in solving the
problems at the whiteboard, sketching out the future with our customers and being paid at our ex pected lev els of
– ex pected margin lev els for this differentiation.
Industrial ov erall totaled about $1 .1 billion in rev enue on a trailing 1 2 -month basis. Ex cluding the defense
industry , these sub-segments grew 5% y ear-ov er-y ear with a 5 -y ear trailing CAGR of 6%. I believ e giv en the
market trends that are unfolding, that we can accelerate this growth over the next fiv e y ears. There is an industrial
rev italization slowly emerging. On the design innov ations that we have been working on with customers ov er the
past few y ears will begin to reach to markets and will create competitive advantage for our customer's customers.
As Dick described, a wav e of ubiquitous sensing in distributed control served like cloud based analytics is only just
beginning. Huge amounts of cloud based data and analysis of ev erything from home control t o oil ex ploration will
lead to an ex plosion in a number of measurement nodes across all industries, fueled by ADI's ex pertise and
technologies that conv ert the phy sical to the digital.
Demands for more and higher end goods of all kinds is being fueled by the increasing ex plorations of a rapidly
ex panding middle class in the dev eloping world. Here are some interesting statistics to help paint the picture.
Ov er the nex t 1 5 years with our 2.5 billion people in the dev eloping world will join the middle class. Ev ery y ear,
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Analog Devices, Inc. (ADI)
Analyst Day
Corrected Transcript
17-Jun-2014
China will add 2.5 new cities the size of Chicago. China will hav e 221 cities with ov er 1 million in population by
2025, while Europe has 35 cities of this size today . Ov er the nex t decade, the number of Chinese people with
disposable income of at least $1 6,000 will grow from $7 0 million to $265 million, or around the same as the EU
and USA combined today. India, South America, and Africa are also expanding rapidly, albeit without the plethora
of statistics of the Chinese gov ernment publishers.
Translating this massiv e ex pansion into a strategy that will y ield substantial growth and high profits for ADI's
industrial business is what my organization focuses on. And ov er the coming y ears, we see four major growth
driv ers for our business, Connecte d Enterprise, Communications Test and Measurement, Infrastructure
Reinv estment and the Energy Ecosy stem.
These trends begin with the Connected Enterprise, there is a massiv ely pent -up need to upgrade a modernized
manufacturing. Consider for ex ample, in the U.S., noted for adv anced manufacturing sy stems, the age of
manufacturing equipment has more than doubled since 1 980s to about 20 y ears. A recent report from Walmart on
the progress of their Made in USA program to add an ex tra $250 billion in U.S. made goods in their stores in the
nex t decade shows that achieving this requires a building of many new plants as well as the modernizing of others.
Our customer's customers will significantly improv e return on assets by replacing antiquated equipment. New
sy stems will use predicted maintenance rather than scheduled maintenance, virtually eliminating downtime using
signal processing technology for diagnostics and communications.
For ex ample, an Analog Dev ices' MEMS v ibration sensor with embedded radio frequenc y transceiv er enables
remote monitoring of industrial machine house. Reducing power and size to operate for y ears from a battery cell
or managing harv esting solution will enable the concept of stick on ultra -low power wireless sensor networks.
The Connected Enterprise though is not going to let a mission critical tester or a multi -million dollar robot be just
another thing on the Internet. Our customers' customers want to optimize their factory performance with
minimum downtime, lowest energy usage and com plete security from infiltrators. It's so fast, the one that ADI is
uniquely positioned to help deliv er.
Here's how we can solv e their problems. Lowest power wired and wireless sensors sprinkled across the factory
with the highest performance conv erters and processing based on our leading analog technology and sy stem
understanding supported by high performance security and communications.
Connectivity and communications are becoming ubiquitous. This is driv ing the second trend behind the growth in
our industrial business wireless testing. The explosion in wireless sensor networks, everywhere from the home to
the factory, the move from a computer per person to many devices per user, the proliferation of wireless standards
and frequency bands, all of this is creating a huge problem to the businesses manufacturing tablets and other
dev ices to test all the potential frequencies in a cost effective manner. Connecting 50 billion dev ices, the Internet
requires a lot of testing.
Test equipment is a major application within the instrumentation portion of our business. And ADI is uniquely
positioned to help our customers, such as Agilent, Teradyne or National Instruments to support their customers
such as Apple or Samsung to solv e this manufacturing conundrum. Their sy stems was to ensure the tablets
conform to requirements for transmit and receive power, radiation and interference. ADI supplies the complete
signal chain from microwave to RF, with the highest performance conv erters and amplifiers, prov iding the wide
bandwidth necessary to test wireless standards from Bluetooth to ZigBee, LTE and ev en 5G. ADI conv erters such
as our aptly named [ph] toother ABC (01 :46:40) 9625, again, enable a v ery high speed, v ery high density of
channels per tester, so many dev ices can be tested quickly at the same time.
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Analog Devices, Inc. (ADI)
Analyst Day
Corrected Transcript
17-Jun-2014
The third trend driving growth in our industrial business is Infrastructure Reinv estment. The headlines are full of
stories related to bridges, pipelines, railways and highways crumbling from government deferral, bureau cracy and
the effects of time. Recent ex amples include the Chinese rail infrastructure; bridge collapses in both the U.S. and
Japan, bridge tilting in Delaware and tunnel seeding failures in Boston. The statistics are staggering. The
American Society of Civ il Engineers says one in nine of the nation's bridges are rated structurally deficient and the
av erage age of more than half a million bridges in the U.S. is 42 y ears.
Worldwide, in order for infrastructure investment to keep pace with global GDP growth, an estimated $57 trillion
would need to be spent between now and 2030. This is 60% more than what has been spent in the last 1 8 y ears. Of
course completely replacing the ex isting infrastructure will be unrealistic in terms of cost and time. Therefore one
possible solution is to help cities and nations to monitor the condition of the bridges, tracks and tunnels to plan on
the replacement timeline.
ADI's strength in sensors, converters, signal processing and radios, allow continuous data capturing analy sis and
leads to as many retrofit opportunities as will be seen in newbuilds. Our nex t generation transceiver, for ex ample,
combines conv erter, controller and radio transceiv er with industry -leading performance in power in tough
env ironments.
A further ex ample of an ex pensiv e infrastructure is a global fleet of commercial aircraft. Commercial aircraft
engines already contain sensors, which are downloaded on ev ery landing and analy ze for safety and prev entiv e
maintenance purposes. Our customers are now demanding sensors on all parts of the airplane, inside and outside
the cabin, with as much real-time data analy sis as possible.
ADI hav e the only gyros specified of the [ph] 1 7 5-3C (1 :49:25), the only low power ADC processor combination,
specified at 1 25 C and a host of other conditioning and connectivity products specified for the harsh environments
and stringent safety standards demanded by our customer's customer.
The fourth trend is the growing opportunity for ADI to aid in the management of the earth's natur al resources.
ADI products are present in the entire cycle; from down-hole drills ex tracting oil to the instruments monitoring
their env ironmental impact, to the trains that transport oil safely, to the homes and businesses that use oil for heat
and electricity .
We see this is worldwide with air quality , the driv e for clean drinking water and the quest for establishing food
prov enance, whether the meat we eat originates from cattle or horses for ex ample. There is a growing need for
measurement instrumentation requiring more accuracy and analysis, utilizing ADI sensors, converters, and signal
processing.
The continuity structure that's non-renewable resources, such is oil and gas, it's critical to meet the needs of the
emerging middle class, and leads to ADI opportunity as identification and ex traction get tougher. The fracking
ex pansion requires more sophisticated extraction equipment, along with ensuring minimal environmental impact.
High performance signal processing technology from ADI is aiding in the s earch for new sources of oil and gas
with products that can withstand 21 0 degree C temperatures in a drill shaft of ex ploration equipment,
continuously keeping to drill, progressing towards its target using sensors that measure angular rate of change.
There is the also need to increase available energy with renewable sources, such as solar, wav e and wind. Solar has
mov ed from a technology supported by European subsidies to one seen as the new energy opportunity in China,
India, and Japan. ADI power conv ersion and isolation technologies are at the heart of sy stems that greatly
improv e the efficiency lev els of the conv ersion – of the heat from the sun's ray s into usable energy .
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Analog Devices, Inc. (ADI)
Analyst Day
Corrected Transcript
17-Jun-2014
Of course in addition to the increasing resources of energy , we need to manage more efficiently , the uses of this
resource. After the Japanese nuclear accident in 201 1 , an analy sis was performed that established that a 1 %
increase in efficiency for all motors in Japan will allow the shutdown of one nuclear power plant.
ADI offer dev elopment platforms with up to 40 mix ed signal components that enable much better performance
and efficiencies from all ty pes of industrial motors. These systems have been developed by ADI domain ex perts in
collaboration with our customers leading to sustainable differentiation for our mix ed signal ASSPs, isolation and
power components. Once energy is generated, the requirements to manage the grid more effectiv ely leads to a
much greater amount of local measurement, whether at neighborhood or individual hom e lev el in addition to the
need for a much better control of the transmission network.
ADI hav e a leadership position in the technologies needed for control measurement and transmission of the
consumption data such as our patented isolated frontend for th ree-phase and single-phase measurements, and
our robust high performance conv erters used in grid protectiv e relay s.
For all these applications, greener is better, more efficient is better, and customers are prepared to pay for the
differentiation of ADI technology brings them. These trends point to ex citing times ahead and solid growth for
industrial longing for the future. The opportunities for ADI arising from industrial rev italization in itself are
ex citing. What also ex cites me is the incredible diversity of customers applications. What we're certainly proud to
count these customers, many of the world's leading industrial brands are need to be energized knowing there are
tens of thousands of customers not listed here, we're now just emerging or with who m we'v e collaborated for
generations. There are v ital parts of the ecosy stems that the big brands rely on to be successful.
Of course this div erse demand and customer base means in addition to growth, ADI can maintain the gross
margins that we attain from our innov ation and technology leadership. Finally , industrial businesses are ideally
suited to ADI, div ersity in thousands of applications with tens of thousands of customers. Our passion for solv ing
the tough challenges, our sy stem understanding combined with leadership technology , sensing, conv erting,
processing, connecting, positioning ADI to lead the third wav e of industrial rev italization. Thank y ou.
................................................................................................................................................................................................................................
Martin Cotter
Vice President, Communications Infrastructure, Analog Devices, Inc.
Thank y ou, Mike. Good morning. My name is Martin Cotter and I'm responsible for Communications
Infrastructure business for ADI, which is just ov er 20% of sales made up of 7 0% wireless and 40% wired. This is
an ex citing business for ADI at a fascinating time with 4G rollout s. It has traditionally been the segment that as
alway s adopted the highest dy namic range, widest bandwidth, lowest noise technology first as it enables that
network. And now with 4G rollout, that's nev er been more true than it is right now.
During this talk, I will ex plain how ADI is well positioned to take adv antage of this 4G wav e, how we are adding
v alue beyond the component level right up to the network and the sy stem lev el and how, as my colleagues hav e
described, this technology has lev eraged into many other adjacent segments like automotive, healthcare, robotics,
smart energy, eHealth and of course, smartphones and tablets that really drive that data connection. This demand
for connectivity is leading to both evolutionary and rev olutionary changes in communications technology . It's
rapidly increasing opportunities for ADI doubling our serv ed av ailable market to reach 4 billion by 2020.
So let's take a look at this wireless network. Wireless data is doubling ev ery y ear driv ing a projected 50 billion
dev ices by 2020. This is truly the age of the ubiquitous broadband wireless network. That network could be always
on, reliably av ailable everywhere, and must now support new mission critical applications. ADI enjoy s a strong
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Analog Devices, Inc. (ADI)
Analyst Day
Corrected Transcript
17-Jun-2014
position in this space. V irtually, every cellular call made any where, any time passes through one or other of ADI's
integrated circuits on the radio card in that 2G or 3G base [ph] dish (01 :56:51 ).
As we look to 4G, the future is ev en better for ADI. That future needs streaming high b andwidth data, interactiv e
v ideo, interactive gaming and cloud computing, all enabled by this new generation of ADI technology . Consider
for a minute, the Super Bowl 201 4, halftime entertainment with Bruno Mars and Red Hot Chili Peppers. That
generated an 800% increase in peak data download than the same event in 201 3. Could y ou imagine the damage
to the network operator of the TV 's business, if that network fails to deliv er at this prime commercial use time?
This high quality 4G and by 2020 5G network relies even more on ADI innov ation than that v oice network of the
past that I spoke about.
So let's take a look at where ADI's technology resides. It's primarily, as y ou can see here on the radio card. The job
of the radio card is to mov e the signal to and fr om the antenna to the digital base band unit. Our longstanding
leadership in signal capture, signal conditioning, conv ersion, and processing enables us to essentially own that
signal right from the antenna down to the bits and back.
This relies on optimized processes, optimized circuits, optimized signal chain, power chain, and clocking, as y ou
can see here. That's a lot of analog. Each piece delivering more capacity , more speed to the network user. As we
transition to these newer 4G and 5G networks, the need to go up in frequency requires ADI to accelerate our
leading technology . We are making deliv ered inv estment decisions to innov ate faster and learn faster in
collaboration now with our leading customers.
Our RF silicon-germanium processes move up from 6 gig up to 7 0 gig and ev en a 1 00 gig as Peter has described.
And our 500 meg advanced broadband converters, they will hav e to move to over 1 gig of input bandwidth, digitize
that multiple gig as Dick has described. All of these technologies come together to reinv ent that network.
In 2G and 3G rollouts, customers needed to design a specific radio for each of the regions of the world and for
each of the ty pical four different frequency bands that existed in 3G. With all those regional v ariants, that meant
that our customer had to design a radio per week, often manually adjusting those radios.
Now imagine the problem of a 4G network. There are 40 bands av ailable. One customer described it's an
impossible task that, had they to follow the same process of the past, they would now have to release the radio per
day to cope with that network. ADI's innov ation is needed to solve this problem by coping with all these v ariance
using our wider band radio solutions.
This pressure on our customer's already stretched analog resources is an immense problem with my customer
now needing this innov ation to solve that problem. These deployments are v ery regionally dependent. Capacity
[ph] rollover of (2:00:20) 4G is happening quickly, but it still has a long way to go. Consid er Korea, 60% of users –
just ov er 60% switched over to 4G. Almost ev ery other region has 20% or less of users now on 4G. And China is
still in single digits.
Consider that what China Mobile has deployed this y ear for TD-LTE was equal to the sum of the last three y ears of
TD-SCDMA deployed in China. China is ex pected to continue for the next three y ears with its already announced
TDD phases. And we hav e new announced FTD phases for China also. And then consider what Mike has
described, the growing urbanization and growing middle class in China, there is an appetite for capacity there for
many y ears to come.
U.S., hav ing built coverage now has to really build capacity . Europe led the 3G technology wav e. But in this 4G
wav e, it's been hardly there because of financial headwinds, but now starting to deploy smarter radios to try and
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Analog Devices, Inc. (ADI)
Analyst Day
Corrected Transcript
17-Jun-2014
catch up. All these trends means there is a significant ex pansion in higher bandwidth, higher integration, higher
performance radios.
Now, let's look at my customers' customer, the network operator. These are under pressure to reduce that total
cost of ownership in the network. This means they hav e to run higher efficiency , higher capacity , higher density
networks, all with minor overall increases in cost. Two of the most significan t ex penses for these operators are
spectrum, which can cost billions of dollars, and electricity, which is amounting to about a third of the operating
ex pense and growing steadily . All of these problems represents huge opportunity for ADI and the disruptiv e
innov ations that we are dev eloping.
Consider that the analog semiconductor spend is only 2% of the $1 20 billion capital ex penditure spent annually .
That means that it's a v ery good strategy to spend more on smarter, flex ible analog radios, ev en with thi s
constrained capital ex pense, especially if it deliv ers overall operating ex pense sav ings leading to that lower total
cost of ownership.
In the past, ADI ty pically supplied component ICs as part of the wireless base station. But now with our optimized
broadband radio solutions, we hav e the opportunity to add v alue up at that network lev el. With this More -thanMoore analog innovation that ADI targets, we're addressing three principal network problems: network flexibility,
network efficiency and network cov erage, all of these deliv ering on that lower total cost of ownership.
Let's take a look at flex ibility. ADI recognized the problem many y ears ago with our significant early inv estments
in configurable RF-to-bits performance radio solutions. This innov ation has a broad selection of architectures,
circuit process technologies. Together with that, ADI brings unique algorithms to enhance this broadband analog,
allowing many bands and regions to be serv ed by a single platform.
Our high performance conv erter and RF technologies hav e enabled us to make a flex ible radio than a simple
custom filtering. This can do many regions, many bands in one solution, sav ing our customer from that
monumental challenge of customizing each radio for each region. ADI is o ne of the v ery few companies that can
prov ide the optimized RF filtering converters and algorithms power and clocking to solve that flex ibility problem.
Taking a look at efficiency , streaming a PowerPoint file on 3G was possible with up to a megabit per s econd
wireless connection. Interactiv e v ideo, cloud -based content, requires pushing for 1 00 meg radio connections.
We're seeing ev en the case where we need to push up to a gig and as we'v e seen in 5G, push up to ev en 1 0 gig for
those connections.
So this is a huge challenge to ex tract that tiny signal from deep within that crowded, busy , noisy spectrum. To
make this happen, our gigahertz conv erters, higher RF, and highest dy namic range processing integrated with
these smart algorithms are engineered to deliver that clean, efficient, reliable spectrum, picking out that signal. By
innov ating with this end application whole problem approach, we use our most valuable customer asset, customer
spectrum most efficiently .
Network operators are also turning to new smarter antenna architectures to maximize on the spectral efficiency. If
y ou look at the picture on the right here of the 4G network, for a giv en power level, that signal doesn't travel as far
as the lower frequency bands that y ou would hav e seen in 3G net works. Therefore, cov ering the same area
requires more sites, innov ativ e antenna architectures, both of these needing more radios.
These larger, smarter antenna rays are the future of the macro network. In fact, they require up to four times the
number of radios compared with 3G antennas of the past, but of course, they deliv er higher capacity macro and
higher efficiency of spectrum usage. This allows us to tackle efficiency of spectrum as well as efficiency of power,
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Analog Devices, Inc. (ADI)
Analyst Day
Corrected Transcript
17-Jun-2014
giv ing improv ements in capital ex pense with fewer new site dev elopments and operating ex pense with lower
power ov erall being required.
Taking a look at network coverage, ADI hav e a portfolio of pico, micro, and macro networks, all working together
in an integrated way for the operator, deliv e ring on required network efficiency to ev ery mobile user. Our
inv estments in microwave and wireline 100 -gig helps us solve the problem of connecting this large number of cells
right back to the all important core network. Our increased microwav e inv estment s help us to increase the data
rates of point-to-point, front and backlog sy stems, again connecting right back to the core network.
These technologies are leveraged into adjacent segments like, for ex ample, satellite communication, which sees a
doubling of opportunity over the next four years. 1 00 -gig wireline networks are being rapidly adopted to connect
the huge growth in the number of data centers all enabled by ADI performance clocking and precision control of
that optical laser, again, leveraged from similar processes as the higher frequency RF network that we described
earlier. The same high performance RF technology is needed for 5G as we mov e up to 30 -gig [indiscernible]
(02:07 :34) frequency spectrum.
So this ex pansion of network coverage with wire less satellite and wireline means y ou can see the Super Bowl or
Soccer World Cup Final in glorious Ultra HD in y our tablet in Central Park or deep in the Amazon Basin or in the
Australian Outback. And of course, if y ou want to, y ou can always go back and r e-live that glory by connecting to
the ov erall network.
All of these requirements of ubiquitous broadband network make an ex citing presence and ev en more ex citing
future for ADI. I personally get feedback from customers that this new future with ADI solv i ng the network
problem that they really care most about. We are uniquely positioned with deliberate inv estment decisions that
we'v e made and with the richness of our technology to create that network of the future.
Consider all its div erse applications, c onnected, safe, driv erless cars require performance networks with no
network weak spots. Smart portable devices, mobile gaming, electronic trading, interactive video content, all drive
low latency for the network, to deliv er on that real-time control and interactiv ity .
Electronic health revolution has life preservation criticality that nev er cannot fail. Industrial, instrumentation,
energy , and automation all interact and gain v alue from the cloud. These applications are finding more interesting
and more v aluable way s to connect ev ery one and ev ery thing on the planet.
So, in summary , all this means that there is an emerging step function improvement in technology required. ADI's
high frequency, high performance innovation is providing and will continue to p rov ide that well into the future.
Our component strengths of fiv e y ears ago have been the strong foundation that we hav e built this new generation
on. This new generation of technology is transforming that network to prov ide full radio solutions today ,
deliv ering on all that critical flexibility that we need. I am confident that ADI's richness of technology in process
and circuit architecture, in package and in sy stem will take us from the heart of radio component of the past to
that optimized network solution of the future, enabling this truly connected broadband world of 2020.
Thank y ou. So now I think we're going to take some questions, Ali.
................................................................................................................................................................................................................................
Ali Husain
Director-Investor Relations, Analog Devices, Inc.
Y eah. So I think y ou just heard from almost 90% of our sales now, and y ou can now ask any questions that y ou'd
like.
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Analog Devices, Inc. (ADI)
Analyst Day
Corrected Transcript
17-Jun-2014
Martin Cotter
Vice President, Communications Infrastructure, Analog Devices, Inc.
I think there was one LTE question.
................................................................................................................................................................................................................................
Ali Husain
Director-Investor Relations, Analog Devices, Inc.
Right. So Martin can do that. We'll get Mark Gill and Mike Britchfield back up on stage. Can y ou read some of the
questions pertaining to the markets?
................................................................................................................................................................................................................................
Mark Gill
Vice President, Automotive, Analog Devices, Inc.
Who is going to win World Cup?
................................................................................................................................................................................................................................
Ali Husain
Director-Investor Relations, Analog Devices, Inc.
Don't ask about why the sirens are running outside. Okay .
................................................................................................................................................................................................................................
Martin Cotter
Vice President, Communications Infrastructure, Analog Devices, Inc.
Okay . So may be while we're just getting settled here, I can co mment on China LTE. And I think it's well published
on the China Mobile TD-LTE deploy ment. The ramp that we'v e seen was announced I think last y ear, and we'v e
done well into the deploy ment of that. As that happens after the announcement, each region then b ids on the
different pieces of business that y ou need. So we see that the deployment goes on for quite a while after that initial
announcement. Now we'v e also seen that FTD has just been announced, those new spectrum that has been
announced in FTD, and we'v e seen higher numbers in terms of deploy ment on TDD.
So predicting ex actly what quarter, when, each of the deploy ments is going to happen is v ery difficult, because
each of the regions will pick up on that. But I think what we're confident of is that tre nd to deploy capacity is really
underway. And as we'v e seen, it should last for a quite number of y ears. So we're also seeing different regions pick
up on that TD-LTE as well as different countries, like Sprint for ex ample in the U.S. So I think this wav e of TDD is
well underway and we're seeing FTD announced and continue for quite some time.
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Analog Devices, Inc. (ADI)
Analyst Day
Corrected Transcript
17-Jun-2014
QUESTION AND ANSWER SECTION
Ian L. Ing
Analyst, MKM Partners LLC
Q
Ian Ing, MKM Partners. A question for Martin. On the radio side, can y ou talk about content increases, whether
it's conv erters or amplifiers? Looks like y ou're getting some positiv e tailwinds there.
................................................................................................................................................................................................................................
Martin Cotter
Vice President, Communications Infrastructure, Analog Devices, Inc.
A
Y eah. I think as we'v e described here, the inv estments we'v e m ade have been a number of y ears ago. What y ou see
deploy ed this y ear is something that we would hav e inv ested heav ily for a few y ears ago. So I think in those
solutions, this – picking one of those targets, each of these things are event -driv en. So each of them are different
solutions that y ou require. For ex ample, LTE is different from – FTD is different when y our need backward
compatibility with a network, y ou need a different solution again. So there are many different technologies that
y ou need to solv e the network.
When y ou look at the inv estments that we'v e made on the breakthrough technologies, what's good news for us is
that those are actually solv ing these problems now. So I think that's where we're seeing the encouraging signs
come from. I think really it is the adoption of the new wav e of technology that's most encouraging.
................................................................................................................................................................................................................................
Ali Husain
Director-Investor Relations, Analog Devices, Inc.
A
Thanks, Ian. And I think Will has a question upfront.
................................................................................................................................................................................................................................
William Stein
Analyst, SunTrust Robinson Humphrey
Q
Thanks. Hi. It's Will Stein from SunTrust. A question about Automotive. Y ou highlighted that y ou're working on
dev eloping new lightweight communication infrastructure in the car. And I'm wondering if y ou can elaborate on
that a little bit. Should we anticipate more wireless RF networks in the car the way y ou hav e for tire pressure
monitoring? Or is this may be more a standard network like Ethernet mov ing away from CAN and LIN bus? And
where are we in the dev elopment of this technology and when should we anti cipate it being significant?
................................................................................................................................................................................................................................
Mark Gill
Vice President, Automotive, Analog Devices, Inc.
A
Y eah. I think if y ou look at v ehicle networks, some of them are ex traordinarily old that are being there since the
v ehicles were first created, maybe 40 y ears, 50 y ears back. And technology is adv ancing in all sorts of different
way s to change and improv e those networks. We'v e mentioned two different choices, right, between wireless
communications and wired communications. And I think when y ou're looking at the v ery significant signal
processing opportunities av ailable to ADI, we have both of those available to us and we can use our technologies
to improv e the networking. But I think y ou need to do that in the way that makes most sense for the car
manufacturers and reducing weight of the v ehicle and the complexity of wiring is something we're v ery interested
about because you can improve fuel efficiency. So y ou can definitely see advances in those two different directions
to improv e fuel efficiency and it's not immediately obvious that y ou change wiring to improv e fuel efficiency , but
it's definitely one of the way s that they can do it.
................................................................................................................................................................................................................................
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Analog Devices, Inc. (ADI)
Analyst Day
William Stein
Analyst, SunTrust Robinson Humphrey
Corrected Transcript
17-Jun-2014
Q
Y ou're seeing adoption of this or a v iew of positiv e reception by either Tier 1 s or auto OEs for wireless standard in
cars?
................................................................................................................................................................................................................................
Mark Gill
Vice President, Automotive, Analog Devices, Inc.
A
I didn't specifically talk about wireless. I'm seeing v ery positive support for wired and wireless new innov ations in
communications technology [ph] within the v ehicle (2:1 5:22) to replace some of the older technologies that are
now more cumbersome for the new v ehicle.
................................................................................................................................................................................................................................
William Stein
Analyst, SunTrust Robinson Humphrey
Q
Thank y ou.
................................................................................................................................................................................................................................
Ali Husain
Director-Investor Relations, Analog Devices, Inc.
A
Any more questions? V iv ek, right up here.
................................................................................................................................................................................................................................
Vivek Arya
Analyst, Bank of America Merrill Lynch
Q
Thanks. V iv ek Arya from Bank of America Merrill Ly nch. Martin, one question. Y ou'v e mentioned China and I'm
alway s reminded of when they went through the 3G ra mp, the ex pectation was that it was going to last sev eral
y ears, they had one or two y ears of v ery good deployment, and then it sort of tailed off, right, there was a period of
digestion. So do y ou expect 4G to be any different? And as part of that, if y ou could also talk about what y ou're
seeing in other regions, and when we were talking last night y ou mentioned 3G in other regions also?
................................................................................................................................................................................................................................
Martin Cotter
Vice President, Communications Infrastructure, Analog Devices, Inc.
A
Y eah. So it's a great topic. And each of these rollouts, they don't just replace the previous case, right. So y ou'v e got
2G, 3G, 4G, and ev en talk about 5G. So what we're seeing is each of them will be optimized at that particular point
in time to deliv er on what's required in the network. So we would say that 3G is far from ov er, right. You still hav e
upgrade of 3G networks. Europe is still upgrading to that HSPA, HSPA+, so that would continue for some time. In
other regions, like Africa or India, we continue with some of those standards as well.
So I think looking at 4G rollout, it's good that that cy cle has actually started and we really wanted to see this
happen. Deploy ment would have been in U.S. last y ear, but now we're looking at capacity rollout. I think one of
the really interesting things that has happened in the last six months is the amount of money that's come into this
whole ecosystem. So y ou see the V erizon/Vodafone case where money ends up in V odafone. Hopefully, now that's
starting to ramp in Europe, but I think people talked last night about Project Spring that's happening with
V odafone.
So I think we're seeing a general, healthier picture coming from this deploy ment of 4G. And, obv iously , the user
base is still in its infancy , right. So when y ou get these applications to really test the network, that's when y ou see
that real ex pansion of capacity. So I would say that we're into a pretty healthy ramp on 4G, but deploying capacity
is going to go on for quite some time. When 5G comes along, that will lay er on top of that. And the best ex ample
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Analog Devices, Inc. (ADI)
Corrected Transcript
Analyst Day
17-Jun-2014
I'v e seen of it is that people will optimize the power to that user. So the least power it takes to deliver a bit to a user
is the network that will be taken up in that case.
................................................................................................................................................................................................................................
A
Ali Husain
Director-Investor Relations, Analog Devices, Inc.
And we also tend to get more content per sy stem as we mov e through the standard, so.
................................................................................................................................................................................................................................
A
Martin Cotter
Vice President, Communications Infrastructure, Analog Devices, Inc.
Y eah. I mean, the example that I was giv en is the – to get that efficiency of spectrum, y ou need to be able to pick
up the signal with the best performing technology. But, of course, the other smarter network lev el is more radios
being able to interrogate all that spectrum. So there's a lot that comes from that deploy ment of ex tra r adios.
................................................................................................................................................................................................................................
Q
Vivek Arya
Analyst, Bank of America Merrill Lynch
Got it. And since the industry is prone to going through periodic issues in terms of ex cess supply, et cetera, how do
y ou make sure that there is no ov er-ordering of components by y our customers? Because they also see a large
number of this opportunity , so how do y ou make sure that there is some discipline there?
................................................................................................................................................................................................................................
A
Martin Cotter
Vice President, Communications Infrastructure, Analog Devices, Inc.
Of course, they do. I don't want giv e John Hodgson a big head no here. But we constantly get a lot of praise for
how well we're able to manage the supply chain. It's not the first time we'v e been through of any of these cy cles,
and hav ing that kind of history and more of the relationship with key custom ers really allows us to manage that
pipeline. Y ou're always going to get the case in the ramp that there'll be ex tra demand that's put into the sy stem.
But generally , we're able to interrogate that and get to the right lev el of managing. Y ou don't want to miss the
customer's deployment because that misses on business. So the thing to care most about is making sure we don't
miss and we don't miss.
................................................................................................................................................................................................................................
Q
Vivek Arya
Analyst, Bank of America Merrill Lynch
So we should be confident there's no ex cess supply inv entory out there today ?
................................................................................................................................................................................................................................
Martin Cotter
Vice President, Communications Infrastructure, Analog Devices, Inc.
A
I think some of that has been corrected; there was some a couple of quarters ago. But I think for the most case,
we're in good shape.
................................................................................................................................................................................................................................
Vivek Arya
Analyst, Bank of America Merrill Lynch
Q
Okay .
................................................................................................................................................................................................................................
Q
Hi Martin. Can y ou just talk about some of the recent consolidation at the carrier lev el and what impact do y ou
think that's going to hav e on CapEx and ADI's rev enues?
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Analog Devices, Inc. (ADI)
Analyst Day
Martin Cotter
Vice President, Communications Infrastructure, Analog Devices, Inc.
Corrected Transcript
17-Jun-2014
A
Y eah, that's a great topic as well. There is a lot of activ ity now at the whole ecosy stem side. So generally what
y ou're seeing is somebody enters for example soft buying Sprint, one of the big factors we look at is, does it end up
with money or does it not end up with money. And most of those cases end up with money in the network. So that
case ended up with Sprint a lot healthier. So y ou look at now T-Mobile, Sprint the discussion on that is going to
generate more competitiveness in this marketplace. And generally competitiveness getting better performance in
the network generates the requirement for a higher quality network.
So CapEx is going to be pretty efficiently managed. But I think a s where y ou spend the CapEx is going to be the
interesting thing. And spending it on improving the efficiency in the network comes with ADI's technology . So we
don't hav e any real concern about this cy cle that's happening now where y ou hav e more competitiv eness and a
higher push for better capacity in the network.
................................................................................................................................................................................................................................
Ali Husain
Director-Investor Relations, Analog Devices, Inc.
A
Well, I think we'v e had 90% of the questions, for about 20% of our sales here. I think Mike Britchfield is feeling
lonely . Any way , do we hav e any questions back there, is it [ph] V ince (02:21 :1 9)?
................................................................................................................................................................................................................................
Q
Y es, thank y ou. Question on the automotive front, there was a slide where it looked like the start -stop technology
is growing v ery , v ery well. And I was wondering if y ou could prov ide any color on just the dollar content
opportunity for ADI in start-stop v ersus what we see in EV as well as hy brid? Thank y ou.
................................................................................................................................................................................................................................
Mark Gill
Vice President, Automotive, Analog Devices, Inc.
A
Y eah. So the hy brid v ehicle market was few y ears ago had v ery high ex pectations, and I think broadly between
hy brid and electric vehicles, they have not panned out to the rate at which the industry had ex pected and desired.
What y ou see instead is the start-stop technology is able to offer really quite significan t fuel efficiency
improv ements and y et for a much lower increased price within the v ehicle. So y ou are seeing this v ery rapid
rollout throughout Europe and now increasing rollout throughout the rest of the world and that's ADI is right at
the center of that. And so it's – both elements are v ery important in the ov erall reduction of emissions of the
v ehicle and improve the fuel efficiency. But y ou've definitely seen start -stop being adopted much more rapidly I
think just because of how the improv ement that y ou can get for the relativ ely low cost at the v ehicle lev el.
................................................................................................................................................................................................................................
Q
Y eah. I will ask Mike because we think we understand LT, but we don't really . I had a question on the industrial
side. What's y our sense of what's going on in the different geographies? Be cause we'v e seen Europe kind of go
through a big slump and may be there's some improvement there, China has been in a funk for awhile and U.S. has
been strong. So if y ou could please giv e us a sense for what y ou are seeing in the v arious geos that will be v ery
helpful. Thank y ou.
................................................................................................................................................................................................................................
Michael Britchfield
Vice President-Industrial & Instrumentation, Analog Devices, Inc.
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A
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Analog Devices, Inc. (ADI)
Corrected Transcript
Analyst Day
17-Jun-2014
Y eah. So I think if y ou look at – and we'v e stated in some of the recent calls [indiscernible] (02:23:36) with
automation and we'v e seen a significant growth ov er the last number of quarters. And I think the inputs for the
coming quarter are continuing, but automation ov erall has been growing strongly . And if y ou look at where the
heart of the automation business is, it's ty pically in Europe and Germany , in Japan and then to a lesser ex tent in
North America. So we're seeing strength and recovery in Europe, strength in Japan. We think China is the focus. I
think the growth rates have been lower, but we're still seeing demand coming from China, being supplied by our
end customers in Germany and Japan. But the industry of the automation heartland, I think will be Germany and
Japan.
................................................................................................................................................................................................................................
Q
I hav e a second question on the infrastructure. I think the number on the slide was $57 trillion, was that cor rect or
that I misread that from back here?
................................................................................................................................................................................................................................
A
Michael Britchfield
Vice President-Industrial & Instrumentation, Analog Devices, Inc.
Y es, it was set at $57 trillion.
................................................................................................................................................................................................................................
Q
Okay . So big, big infrastructure numbers hav e been adv ertised for many , many y ears.
................................................................................................................................................................................................................................
Michael Britchfield
Vice President-Industrial & Instrumentation, Analog Devices, Inc.
A
Y eah.
................................................................................................................................................................................................................................
Q
And there has been just this v ery slow plan of action. I don't know if that's a gov ernment thing, I don't if it's a
public and priv ate thing. How do we – how do y ou see that market changing? And how do y ou see the growth rate
of that huge number actually start to transpire into y our growth as a company ?
................................................................................................................................................................................................................................
Michael Britchfield
Vice President-Industrial & Instrumentation, Analog Devices, Inc.
A
Well, I put that number up, but then I – what I said after that, I backed out of it and said that that's not a realistic
number to be spent over the nex t number of y ears. What I did say was that instead of spending that number to
significantly replace the infrastructure with newbuilds, in fact there was a lot of opportunity for the addition of
sensors whether it's – we talked earlier on about our low power accelerometer that can be used for measuring
v ibration effects or seismic incidents for ex ample. And we see the big opportunities there and actually retrofitting
ex isting infrastructure with a large number of sensors and communication capabilities, that's probably a greater
opportunity for us than ex pecting gov ernment to start spending that $57 trillion any time soon.
................................................................................................................................................................................................................................
Ali Husain
Director-Investor Relations, Analog Devices, Inc.
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A
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Analog Devices, Inc. (ADI)
Analyst Day
Corrected Transcript
17-Jun-2014
Any more questions? No. I'd say we go to a break and we'll reconv ene at about 20 minutes at 1 1 :30, for our nex t
round.
Break [02:26:08 – 02:27 :00]
................................................................................................................................................................................................................................
Ali Husain
Director-Investor Relations, Analog Devices, Inc.
All right, ev eryone. I think we are going to call this to order now. It's 1 1 :30 we'v e got our V P of Worldwide Sales,
here ready to rock with his German accent. So let's cozy up again and start. All right, folks, its 1 1 :30. Thanks for
coming back. So, I'd like to introduce now, it'll be a v ery good session. It'll be our V P of Worldwide Sales followed
by our V P of Manufacturing. And so first, I'd like to hav e on stage, Thomas Wessel.
................................................................................................................................................................................................................................
Thomas Wessel
Vice President-Worldwide Sales, Analog Devices, Inc.
Thank y ou, Ali. Well, good morning. I'm Thomas Wessel and I'm heading up Analog Dev ices Worldwide Sales
Organization, and I'll be adding a German accent to the flow of the presentation to y ou.
Y ou'v e seen and heard about our technology , markets, and strategies from my colleagues already , and y ou will
hear how we make a difference through our manufacturing capabilities after my presentation. Now, with all y ou'v e
seen, y ou might think the sales task for Analog Dev ices should be a p retty easy one, right? But let me show y ou
what the challenges and opportunities are and how we make a difference with that sales organization.
Here's a rev enue profile as it might look in our industry. However, not many in this industry can claim an acti v e
customer base of 1 00,000 customers like we at Analog Dev ices have built ov er the past 49 y ears. And actually if
y ou went down to the smallest level of sale and customer, we have served more than 220,000 customers ov er the
past fiv e y ears. It is this div ersity that prov ides us with a continuous stream of opportunities and eliminates
dependencies on a single or few accounts. And ev en in those largest accounts, we established a v ery broad
footprint and supply hundreds of line items to them.
Now that div ersity and customer base doesn't come without challenges when y our objectiv e is, engage ev ery
customer, enable ev ery design, and do it early . We constantly aim to reach, or increase our reach into the
customer base to control our own destiny, direct through p artners, alliances, and tools and services. The objectiv e
really is to reach further into the customer base, and bring those customers from the right ov er to the left to
contribute to our continued success.
Now, what are the elements to ex ecute on that? We'v e got the circuits on the left. Those are reference designs, with
guaranteed performance for easy implementation in our customers' product. We'v e got the field application
engineering centers, which are globally deployed experts to support our customers directly. Engineering zone, it's
really 24/7 collaboration, supported by ADI experts, and by the way , being awarded Best B2B community award
from Forrester Research.
The global account teams, those are prov iding end -to-end cov erage for strategic accounts around the globe.
analog.com is one the largest B2B sites in the industry . And our regional teams are those that dev elop focus in
emerging accounts, and take them to the nex t level, as I described. The web to support design communities and
other platforms with ADI branded content. Our distribution partners, they support thousands of customers with
design support, logistic serv ices from v ery small quantities to complete supply chain solutions on our behalf.
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Analog Devices, Inc. (ADI)
Analyst Day
Corrected Transcript
17-Jun-2014
Last but not least, we'v e got a third-party ecosystem, where we build alliances with industry partners to deliv er
more complete solutions, and enable a faster sy stem design. The combination of the support elements that I just
described does the foundation for a strong customer engagement and customer sup port.
Now, let me giv e y ou one example of early engagement. Actually it's an engagement with our customer's customer.
Audi, one of the most innov ativ e car manufacturers globally has giv en the permission to world premiere the
following v ideo describing the PSCP, which stands for the Progressive Semiconductor Program and which Analog
Dev ices play s a key role. So here we go.
[V ideo Presentation] (02:31 :57 – 02:34:24)
All right. So it's 90% of the innov ation coming from electronics in cars and the ev er increasing content y ou might
understand the enthusiasm that Mark Gill had for his part of our business. So, more importantly , so, why is
Analog Dev ices selected as a partner for Audi here? It's because our technology is relev ant, and it enables
innov ation. Our strategies are aligned with our customers, and we hav e built deep relationships with those
customers from many , many y ears ev en in the y ears when automotiv e wasn't in v ogue.
Okay . Now from the large accounts to the many accounts, where the challenge is di fferent, and where early
enablement is the key to success. Looking at customers, RF design – RF sy stem design is an ex ample for
traditional design flow. Y ou will find that it used to be v ery strongly component based; it was highly customized
with a large number of v ariants, and as result v ery support -intensiv e. It required high in-house RF skills and
ty pically resulted in long-time to market and truly the reuse of those designs was v ery much limited.
In order to reach more customers, including those who do n't hav e the RF design ex pertise in-house but where
market requirements demand no -connectivity for their products, we hav e established an ecosy stem around our
SDR rapid dev elopment platform that allows to start experimenting, ex ploring, and developing sy st ems in hours.
A proof point for this concept is the opportunity pipeline generated through our channel, primarily with the
smaller and medium-size accounts. Comparing the opportunity pipeline three -quarters before the release and
three-quarters after the release of the RF ecosystem shows an increase in that opportunity pipeline of 3X and we
are determined to capture all of it.
Y ou can see a few of the awards we receiv ed recently from customers and partners acknowledging our joint
success. So whatever it is that y ou take away from my presentation, I want y ou to remember Analog Dev ices has
the technology, we hav e the approach, and most important, we hav e the talented people to engage ev ery customer,
enable ev ery design, and do it early .
Thank y ou v ery much for y our attention.
................................................................................................................................................................................................................................
John Hassett
VP-Assembly & Test Operations, Analog Devices, Inc.
Good morning ev eryone. I'm John Hassett, V ice President of Manufacturing for our worldwide assembly and test
operations. And this morning, I'm going to speak with y ou on key components of ADI's ov erall manufacturing
strategy and supply chain, which deliv ers world -class performance for our customers.
Our global manufacturing mission at the highest level is to complement the best signal processing technologies
with a world-class supply chain, which supports the dev elopment, manufacture and decades long operation of
high-quality solutions that are essential to our customers. The ex ecution of this mission is v ery complex . And I
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Analog Devices, Inc. (ADI)
Analyst Day
Corrected Transcript
17-Jun-2014
believ e by the time I'm finished this presenta tion this morning, y ou will be in full agreement that ADI's
manufacturing and supply chain strategy is not only world class, but it's differentiating for our customers.
So, let me take y ou through some of this. As y ou can see here, ADI's supply chain comp lexity can be best described
by the routings of our 20,000 end product models via 7 50,000 customer orders, shipped into 80 countries and
indeed shipping within those countries to 40,000 end customer locations. Our supply chain is comprised of both
internal and ex ternal manufacturing operations using dozens of factories around the globe from wafer fabs
processing wafers using hundreds of process v ariants, assembly operation packaging thousands of package
v ariants to test operations using hundreds of different testers and handlers require to complete the manufacturing
flow. All of this is further complicated by the fact that despite our v ery best efforts, v isibility to end customer
demand is often far less than the full manufacturing cycle time. Despite this l evel of complexity and indeed limited
v isibility , we ship greater than 96% of all of our products to our customers in less than six weeks.
Quality performance is critical for the applications that were discussed here this morning. From the obv ious
mission critical systems such as cross sensing, automotiv e safety assistance, and the v ital signs monitoring and
healthcare to probably the less obvious, communications infrastructure and electrical grid control. ADI shipment
quality levels of one defect per 1 million units shipped underlines the world class performance of our products.
This chart shows y ou the high lev el manufacturing and supply chain flow. This is being designed to deliv er
flex ible, responsiv e and predictable operations. Our manufacturing opera tion can be v iewed in two key
components: wafer fabrication commonly referred to as the front -end, and assembly and test, referred to as the
back-end. We manage our supply chain by leveraging internal and ex ternal manufacturing sources from wafer fab
through assembly and test operations.
We effectively balance capacity, capability, complexity, and cost to deliver unique solutions to our customer base.
Our manufacturing cycle times in our front-end range from approx imately 6 to 1 2 weeks. And within the backend, we run approx imately two to four.
Let's talk a little bit about our front-end manufacturing. Our wafer fab operations are split approx imately 50 -50
between ADI-owned wafer fab facilities in Wilmington, Massachusetts as well as in Limerick, Ireland. And
ex ternal wafer foundry partners supply the balance. We use a complementary mix of internal and ex ternal
processes providing wafer fab process technologies to require it to maintain ADI's leadership in high performance
signal processing. Our ex ternal manufacturing partners are mainly used for a wide v ariety of commercially
av ailable deep submicron lithography notes.
We also hav e the ability to modify these ex ternal processes using ADI -specific IP and that's based on the
relationship that we hav e developed for our ex ternal partners. ADI's internal wafer fabs specializing hundreds of
proprietary wafer fab processes, not av ailable ex ternally , prov iding unique technology focused on high
performance, customizable, proprietary, bipolar, mix signal, sensor, and isolation technologies. These wafer fab
operations are specialists in supporting large process mix complex ity .
Our ex pertise in this area has allowed us to support many relativ ely low v olume and v ery , v ery long life -cy cle
products whose av ailability is c ritical to our diverse customer base, because these products provide our customers
v ery high lev els of differentiation.
Now, much earlier this morning, Dick shared with y ou the relationship between Moore's Law and More than
Moore. Our internal fab operations prov ide capability for More than Moore process technology , critical to
deliv ering leading-edge solutions that y ou'v e heard about this morning, such as sensor, and signal processing
integration, we used to differentiate in the industrial, automotiv e and healthcare segments.
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Analog Devices, Inc. (ADI)
Analyst Day
Corrected Transcript
17-Jun-2014
Our manufacturing teams hav e been to the forefront in More than Moore, using semiconductor infrastructure,
equipment, materials, and methods to manufacture non-transistor based disruptiv e technologies such as MEMS
accelerometers, gyros, and iCoupler isolation technologies. We continue to invest in these disruptive technologies.
We generate capabilities, materials in the areas such as photonics and IR sensing, magnetics, and energy
harv esting.
These technologies will play an increasing role in the sensor-ladened intelligent devices or the ubiquitous sensing
sy stems, Dick Meaney spoke to earlier. ADI's proprietary manufacturing capabilities combined with our selectiv e
use of commercially available manufacturing capabilities allows ADI to deliv er products that enable the entire
sensing, monitoring and control, and connectiv ity signal chain, creating unique solutions for our customers'
challenges.
Pictured here is our ADAS1 256 Sy stem -On-Flex -Film Technology for Digital X-ray . This is a great ex ample of
lev eraging and use of More than Moore, where we integrate analog and conv erter technology with adv anced
packaging techniques to deliver for our customers, a single IC-based customizable sy stem-in-a-package solution.
So now let me transition and speak about our assembly and test side of the supply chain.
Our assembly and test operations or as more frequently referred to the back-end of the semiconductor industry is
in my opinion, the unsung hero of analog and mix signals semiconductor manu facturing.
As we mov e from wafers to package and test units, the permutations and combinations of packages, lead counts,
testers and handler ty pes ex pands to thousands of product combinations. My manufacturing team manages a
global supply base of assembly and test operations, supporting in ex cess of 300 unique package form factors, not
to mention the ex tensiv e list of process v ariants necessary to support ADI's ex tensiv e product portfolio.
ADI is partnered with a team of suppliers, who not only recognized the critically of scalability and reliable
manufacturing operations, but also collaborate with us to produce innov ativ e packaging technology . With the
adv ent of wafer-level chip scale packaging, before we bump the interconnects directly onto the wafer, we hav e
used this packaging technology to create three dimensional sy stems -in-package solutions. This has been
accomplished by apply ing Thru Silicon V ia solutions in conjunction with Sy stem in Package capabilities.
Using this technology allows us to integrate the functionality of sev eral products into the smallest form factor to
deliv er superior performance. While highly innovative packaging and product solutions, the manufacturing and
supply chain complexities increase exponentially requiring significant su pply chain agility. ADI's engagement with
adv anced packaging partners allows us to innov ate these nov el solutions to meet our technology roadmap
requirements and lev erage commercial off the shelf solutions where appropriate.
So once we'v e assembled the product, we now hav e to test them. We test 1 00% of our products try ing to shipping
them to our customers. Test technology is a key differentiator for ADI and indeed highly v alued by our customers.
Our test operation in Cav ite, Philippines develops proprietary test algorithms and processes necessary to test the
majority of our products. Our subcontract partners prov ide the additional capacity and capability .
Manufacturing flex ibility and operational agility in a test operation is a critical requirement to sup porting a ultra
high mix product portfolio. Our team in the Philippines has dev eloped proprietary factory floor and sy stem
management utilities that deliv er world class operational ex ecution at these mix lev els.
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Analog Devices, Inc. (ADI)
Analyst Day
Corrected Transcript
17-Jun-2014
In addition, we hav e also established an ex tensive product engineering organization in the Philippines. This team
prov ides product support for both our internally -manufactured products as well as our ex ternally -manufactured
products. And the focus of this team is to driv e overall improvement in bot h operational and product efficiencies.
As a manufacturing leader in ADI, I'm in a unique position. My team evaluates and selects industrial automation,
robotics and electronic test equipment, used in the manufacture of ADI's ICs. Many of these industrial automation
and instrumentation sy stems use ADI products inside.
As I present to y ou today, I am ADI, the supplier to my customers and I am also ADI's customer's customer. As the
customer's customer, I can attest to the need to modernize manufacturing and infrastructure as Mike Britchfield
described earlier. But at the same time, I must be able to continue to manufacture products ov er v ery , v ery long
product life cy cles.
Ov er the last fiv e y ears, ADI has migrated to an open-market tester platform, running proprietary test algorithms
dev eloped by ourselv es. This has become the standard configurable tester platform that we use to test our
products. Indeed the transformation in our test strategy has been made possible in part by the fact that the test
sy stems' capabilities have improved over the last number of y ears. Thanks in part, of course, to the fact that they
are ADI products inside. Some of our products are being tested and shipped to our ATE customers, enabling their
testers to test our technology needs and reside in our test floors, where ADI's products are essentially testing ADI
products, sort of brings to mind the old adage which came first, the chicken or the egg.
Mov ing from our manufacturing operations, I just need to touch on cost. Flex ibility and agility is critical to the
success of any supply chain, however, it must also be cost effectiv e. As a manufacturing organization, cost focus
and reduction strategies are part of our DNA. We hav e focus teams that driv e efficiency gains in our
manufacturing process and supply chain.
We are constantly driving standardization, simplification and rationalization of our asset base. Dav e mentioned
earlier on some of those rationalizations. I think, however, it is noteworthy that we hav e significantly improv ed
ov er the last couple of y ears efficiencies in our manufacturing footprint.
Transformations such as these, our tester platform strategy and our gross margin focus teams hav e been key
components to our gross margin ex pansion improv ing ov erall manufacturing performance and cost. Our
manufacturing team's focus is to driv e operational ex cellence. Central to this focus is our focus on quality
performance which spans all aspects of manufacturing.
Organizational agility is all about better service to our custome rs and can't be optimized without each employ ee's
engagement. Total quality management ensures we hav e the most repeatable processes. Our world class demand,
planning and manufacturing execution systems synchronize the cadence ensuring predictable serv ice. Our own
measurement orientation coupled with the feedback from key customers sets the stage for ongoing improv ement
plans to sustain our world class performance.
So in summary , from the time the wafers are produced to the time an order arrives at a custo mer, our supply chain
deliv ers what the customer wants, when the customer wants quickly, cost effectiv ely and without compromising
quality or innov ation.
Finally , y ou'v e seen this chart already from Thomas, our customer awards. While my assessment as the
manufacturing leader of our performance to our customers is probably regarded by y ou as interesting and a
predictable comment from the manufacturing guy up here. I believe our customers' opinion is all that counts. And
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Analog Devices, Inc. (ADI)
Analyst Day
Corrected Transcript
17-Jun-2014
as y ou can see from the latest round of supplier awards, our customers truly v alue ADI, not only as a high -quality
solution prov ider, but also as an outstanding supplier. Thank y ou v ery much.
I believ e the nex t step is for me to hand ov er to V ince.
................................................................................................................................................................................................................................
Vincent T. Roche
President, Chief Executive Officer & Director, Analog Devices, Inc.
Well, many thanks to y ou for y our attention and y our engagement this morning. Before we break here or actually
before Dav e and I take final Q&A, I thought I'd make just a final few comments here. I hope that we'v e conveyed to
y ou during this morning the many great things that are happening at ADI through our technology dev elopment
areas, our market engagements, our sales force and our whole online experience that we'v e dev eloped along with
our manufacturing operation. In fact, I think what John describes we hav e one chart that describe the numerics of
the deliv erables from a manufacturing operation, that's essentially the franchise of ADI.
So, what really excites me is that I think that the business env ironment i s mov ing towards ADI's technology and
that the era of opportunity ahead of us will be greater than at any other era during our 50 -y ear history .
I hope we'v e conv ey ed to y ou that we are relentless in driv ing innov ation in ev ery aspect of what we do from
product dev elopment, application dev elopment, online ex perience, customer engagement. I believ e that our
activ ities are focused on the most attractive opportunities. As we talked about, we'v e been shaping and sizing the
company around what we believ e are the opportunities that will bring the greatest opportunity for growth, for
sustainability and for great returns in future.
And as y ou'v e heard from many of the presentations this morning, our customers are turning to ADI more and
more to solv e bigger chunks of their signal processing problem. And that's the wheelhouse of ADI, that whole
signal processing experience and delivering broader, deeper technology in that area in the future. And partnering
with our customers more deeply in the future is something t hat's important to us and to our customers.
As Dav e pointed out, we have a business model now as well that can deliver ev en stronger returns in future. And
we are v ery committed to finding way s to deliv er that $4 to $5 EPS number that I think got y our att ention this
morning. And I believe it's possible based on what we can do organically as well as through the use of our cash to
generate new opportunities. And I can assure y ou that our leadership team and our employ ees are v ery , v ery
passionate about all the things we're doing ultimately to deliv er customer v alue and v alue to our shareholders.
So with that, I will turn it ov er to y ou. If y ou hav e questions for Dav e and I, we'll be glad to field them for y ou.
Thank y ou.
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Analog Devices, Inc. (ADI)
Corrected Transcript
Analyst Day
17-Jun-2014
QUESTION AND ANSWER SECTION
Q
[ph] Ben (02:57 :1 7 )
................................................................................................................................................................................................................................
Q
I just had one follow-up question for John, if that's okay . [ph] See (02:57 :24) fair game?
................................................................................................................................................................................................................................
Ali Husain
Director-Investor Relations, Analog Devices, Inc.
A
Y eah, it's fair game.
................................................................................................................................................................................................................................
Q
Okay . John, y ou said y ou are testing – this is an easy one, y ou said y ou were testing 1 00% of the products. It
sounded like y ou were doing most of the testing internally , but then y ou mentioned sub -cons. What's the
breakdown between what y ou're testing internally in sub -cons and has that changed at all ov er time?
................................................................................................................................................................................................................................
John Hassett
VP-Assembly & Test Operations, Analog Devices, Inc.
A
We hav e a v ery large test operation down in Cav ite in the Philippines, that's our internal facility . And that
operation over the last number of y ears, we have consolidated a lot of our test operations down there. The facility
test the majority of our – the majority of our products and our subcontractor partners then manage the test
operation in some of our what we call are single roof assembly and test products that we wil l start into an
assembly operation in the subcontractor. Relativ ely simple products to test and we will complete the testing of
them there, and then shipped to our warehouses.
................................................................................................................................................................................................................................
Q
Thanks.
................................................................................................................................................................................................................................
Q
Questions also for John. Giv en the Hittite acquisition and different dy namics going on with the company , could
there ev er be an announcement regarding 300 millimeter for ADI in the future?
................................................................................................................................................................................................................................
John Hassett
VP-Assembly & Test Operations, Analog Devices, Inc.
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A
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Analog Devices, Inc. (ADI)
Analyst Day
Corrected Transcript
17-Jun-2014
Well, let me speak to the 300 millimeter, I obv iously c an't hav e further discussions in relation to the Hittite
question, however, so, let's talk about 300 millimeter. ADI's manufacturing strategy as I showed y ou earlier on is
really split between our internal capabilities, as well as on the ex ternal side.
On the ex ternal side, we hav e a great relationship with our foundry partners, where we're able to access both scale,
as well as size in terms of capabilities, and indeed shrinking down in terms of the lithography cards, where we
need it and for the products that are either currently running or in dev elopment for the future where we needed to
hav e those shrinking lithographies.
Howev er, I think the real picture to take away here is in terms of looking at the complex ity of our portfolio. The
v ast majority of o ur products running v ery , v ery – we'v e large numbers of products with relativ ely large
production runs that we will run through the external site. However, on our internal operations, y ou hav e a v ery ,
v ery high mix , high, high mix operation in the internal fabs. That leads to much, much smaller lot sizes, that
would lead to smaller production runs where a 300 millimeter may not make sense or would not make sense at all
in relation to that. So for scale, we have the capability, we hav e the access ex ternally. And on the technology front
internally , we hav e all the capabilities.
................................................................................................................................................................................................................................
Vincent T. Roche
President, Chief Executive Officer & Director, Analog Devices, Inc.
A
I think the way to think about this [ph] V ince (3:00:04) is that, as John said, in our business, agility is much more
important than scale. We require hundreds of process recipes to run this business. But y ou know, if we need – at
any point in time, we need 300 millimeter, [indiscernible] (3:00:12) whatev er it is, we can get access to it. Bu t in
our business, it's much more important to hav e agility and access to lots of process [ph] v ariants (3:00:22).
................................................................................................................................................................................................................................
Q
One more for John [ph] right up there (3:00:30), kind of follow on that one. Y our mix is 50 -50 internal-ex ternal.
Is there specific go al that y ou like to work to? Obv iously it's probably the seasonally strongest period to build in
y our [ph] mid 7 0s (3:00:40), you can grow into it. If y ou look at y our new products, is there a disproportionate
internal v ersus ex ternal? And then for Dav e, just remind me what the incremental drop through is as y ou get
better utilization internally ?
................................................................................................................................................................................................................................
John Hassett
VP-Assembly & Test Operations, Analog Devices, Inc.
A
The mix running out of 50 -50 really is driv en in terms of the technology that we need, access to particular
lithographies in terms of mov ing on the ex ternal side. So we're not really managing it specifically on a 50 -50 mix .
It's really all around in terms of accessing the technologies as well as in terms of lev eraging our internal
capabilities and ex panding that with more and more technologies.
................................................................................................................................................................................................................................
David A. Zinsner
Vice President, Finance and Chief Financial Officer, Analog Devices, Inc.
A
I would say that the mix since I'v e been here has been 50 -50, so.
................................................................................................................................................................................................................................
Q
Y eah.
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Analog Devices, Inc. (ADI)
Analyst Day
David A. Zinsner
Vice President, Finance and Chief Financial Officer, Analog Devices, Inc.
Corrected Transcript
17-Jun-2014
A
It's not like a set target, but it just seems like we alway s kind of end -up in that range. Generally the rule of thumb
on utilization is that for ev ery 1 percentage increase in utilization, we g enerally get a 1 0 -basis point lift in gross
margins. Another way to look at it is, we're roughly getting kind of an 80% fall through on incremental rev enue
which is driv en a lot by the utilization.
Now, as John pointed out, we do have this blend. So if th e ramp is more skewed towards ex ternal foundry, then of
course, we don't get much fall through because we're pay ing for the incremental wafers. But if it's skewed to the
internal foundries, and of course, we get a ton of lev erage because of the incremental cost is not that ex pensiv e to
run more wafers through the internal foundries. But the general – despite the mix , it generally runs about an 80%
fall through and about 1 0 basis points for ev ery 1 % improv ement in utilization.
................................................................................................................................................................................................................................
Doug Freedman
Analyst, RBC Capit al Markets LLC
Q
Great. Thanks. Doug Freedman, RBC. V ince, you'v e had a pretty busy year with the acquisition. I'd like to focus on
the div estiture though that y ou did earlier in the y ear. And what is it that y ou saw in that business on the MEMS
side that made y ou div est your MEMS microphone business and may be giv e us a little insight in how y ou look at
the businesses that fall into that category . How does something end up there?
................................................................................................................................................................................................................................
Vincent T. Roche
President, Chief Executive Officer & Director, Analog Devices, Inc.
A
Y eah, it's a good question, Doug, and I knew somebody would ask it. So, we're all the time ev aluating our options
in terms of the things we're in, the things we're not in. But specifically in the microphone business, we felt that the
performance barrier was getting lower and lower. It certainly wasn't increasing at the rate we had ex pected. And,
y ou know, Mark ov er here who runs our MEMS business has more things to do than we can inv est in. So we got to
pick our spots carefully .
So in that particular case, we decided that with the commoditization of the microphone and our need to do some
new things in the MEMS area, ev en though we're spending more than $0.5 billion in R&D, we still hav e a limited
pot. We'v e got far more opportunity than we 'v e got resource to put in towards the opportunity .
So, it was one of those cases where we decided, [indiscernible] (3:03:55) commoditization. I think that's the track
it's on. A lot of I would say confusion about the long-term for that business is that whether it becomes part of an
electromechanical sensor cluster or signal processing isn't as important part of the problem in future. And y ou
know, we just hav e better things to do with our money at this point in time.
................................................................................................................................................................................................................................
Q
Great. Thanks for that answer. And I think there are still a few Irish-American actors that y ou can choose to take
place. Mark Wahlberg or Pierce Brosnan come to mind.
................................................................................................................................................................................................................................
Vincent T. Roche
President, Chief Executive Officer & Director, Analog Devices, Inc.
A
May be in retirement. Thank y o u.
................................................................................................................................................................................................................................
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Analog Devices, Inc. (ADI)
Analyst Day
Corrected Transcript
17-Jun-2014
Q
Great, thanks. Y ou guys obviously decided to do y our – with the recent acquisition of Hittite, I assume on the RF
area. I think some people have been speculating y our acquisition might hav e been in the power area. Y ou guy s
hav e always been strong in signal chain. What's the thought now? It seemed like y ou sort of de -emphasized power.
Is power necessary for y ou guy s? And if so, do y ou hav e to do an acquisition to jump start that business?
................................................................................................................................................................................................................................
Vincent T. Roche
President, Chief Executive Officer & Director, Analog Devices, Inc.
A
Well, it's a great question. We used to hav e this v ision of building a power franchise. And y ou know, just as tough
as it is for our competitors to build a conv erter franchise from a small position, I think it's equally di fficult for
somebody like ourselv es to build a power franchise on a broad basis.
But we are spending, we are inv esting in power. And what we'v e chosen to do is spend our R&D dev eloping
differentiated power technology to support our signal chains. Dick tal ked earlier about some of these v ery , v ery
adv anced converters we're developing in 28 nanometer, it's 65 nanometer where y ou'v e got to deliv er supplies
that are v ery clean, low noise. So we're dev eloping power technology to enable the achiev ement of those goals in
the areas that are v ery , v ery important to us.
And by the way , I think it's not well known, we hav e really two parts to our power business. Half of ADI's power
franchise is an area where we'v e led for many y ears, actually, in areas like superv iso ry circuits, reset generation,
those power control or system control ty pe functions that get lumped into power. And the remaining half is the
linear regulation side of things.
So I think we're in a good place with this now. We'v e got the inv estment sized correctly . But clearly , the focus of
this company in terms of where we're dev eloping breadth and depth for future is really signal processing, with
power as a support function.
................................................................................................................................................................................................................................
Q
A question for John. [Inaudible] (3:06:40 – 3:06:55) Hittite had some unique packaging capabilities. What
percent of the ADI traditional portfolio do y ou think would that be useful for and how quickly can y ou move some
of those ov er?
................................................................................................................................................................................................................................
Vincent T. Roche
President, Chief Executive Officer & Director, Analog Devices, Inc.
A
Well, y ou know, I think John has been part of the due diligence team. The way we v iew the Hittite franchise, that's
a company that has developed a v ery, v ery good business. They 're efficient in terms of R&D spend, they 'v e got a
nice franchise, 1 ,000 plus products and our v iew is that we're v ery complementary .
There are a lot of things they are doing that we're going to find tremendous v alue in by the way . So I think what
we're going to do in the short term is find way s to lev erage our sales force where we hav e 20 times the scale of
Hittite or thereabouts, take that product portfolio and make it stick. And long -term, in terms of what we do with
manufacturing and consolidating product roadmaps and so on, that will come at its time. But what we'v e got are
two v ery functioning businesses that are v ery complementary in the markets we're play ing and with the kinds of
process technologies and packaging technologies we're play ing with. So I think that's the way to v iew it.
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Analog Devices, Inc. (ADI)
Analyst Day
John W. Pitzer
Analyst, Credit Suisse Securities (USA) LLC (Broker)
Corrected Transcript
17-Jun-2014
Q
V ince, it's John Pitzer with Credit Suisse. A couple of questions here. First, I think y ou, in one of y our answers,
talked about gaining a point of market share a y ear for the past sev eral y ears.
................................................................................................................................................................................................................................
Vincent T. Roche
President, Chief Executive Officer & Director, Analog Devices, Inc.
A
Y eah.
................................................................................................................................................................................................................................
John W. Pitzer
Analyst, Credit Suisse Securities (USA) LLC (Broker)
Q
I'd be curious, what do y ou think peak market share is in y our market giv en some of y our dominant share
positions y ou have? And if y ou look at sort of the growing importance of scale, the breadth of IP y ou're bringing,
could y ou actually make an argument that y our share growth will accelerate from here? That's my first question.
................................................................................................................................................................................................................................
Vincent T. Roche
President, Chief Executive Officer & Director, Analog Devices, Inc.
A
I think that's a great hy pothesis. My sense is – one way to look at this is to really think about how the franchise we
hav e is play ing at the customer lev el. Customers are placing their bets more clearly on fe wer play ers. And the
reason for that is, I think generally speaking, and I'll giv e you a great example; our CTO and I were v isiting one of
our big industrial customers recently . And we met the CTO of this company and we were just talking about how
the world has changed in the last 1 0 y ears. And he said, what used to take him 25 analog hardware designers 1 0
y ears ago, takes him one or two now.
Now the complexity is going like that, the cy cles are getting faster and faster, so how did they solv e the problem?
They hav e to turn to the supply chain and we're v ery , v ery well positioned to take on more and more of that
challenge. So as a roundabout way of answering y our question, my sense is that we hav e a great opportunity to
ex pand the share of the company as that alignment or realignment of the way our customers and ADI do business
together takes place in the nex t 5 to 1 0 y ears.
................................................................................................................................................................................................................................
John W. Pitzer
Analyst, Credit Suisse Securities (USA) LLC (Broker)
Q
And then as my second question, Dav e gave us some broad financial goals to hold y ou accountable for between
now and 2020. I'd just be kind of curious y ou brought a lot of senior...
................................................................................................................................................................................................................................
Vincent T. Roche
President, Chief Executive Officer & Director, Analog Devices, Inc.
A
[ph] There's two (3:1 0:1 3) by the way .
................................................................................................................................................................................................................................
John W. Pitzer
Analyst, Credit Suisse Securities (USA) LLC (Broker)
Q
Y ou brought a lot of senior managements to the ev ent today . How are people incentiv ized internally ? What are
kind of the key metrics for bonuses and incentiv izing key personnel at the c ompany ?
................................................................................................................................................................................................................................
Vincent T. Roche
President, Chief Executive Officer & Director, Analog Devices, Inc.
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A
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Analog Devices, Inc. (ADI)
Corrected Transcript
Analyst Day
17-Jun-2014
Y eah. So, broadly speaking, throughout the company we have kind of two bonus sy stems if y ou like. We hav e the
general employee bonus system, which is half on rev enue growth and half on operating profit. And our sales force
of course is paid on revenue growth. The leadership team is incentivized, obviously, on revenue growth, operating
profit. But more of our equity stake now is paid on things like TSR. So we'v e mov ed from purely – really a profitbased sy stem to hav ing a lot more differentiation in terms of the things we're looking at and pay ing people and
holding people accountable for. Y es?
................................................................................................................................................................................................................................
Q
Thanks. I guess for Dav e and V ince. Y ou'v e run with a quite con serv ativ e balance sheet up until the Hittite
acquisition. And Dav e, y ou were talking about ongoing bits and pieces of M&A as part of the use of capital through
2020. Are y ou signaling a bit more of a less conservatism around that balance sheet? Would y ou e xpand a little bit
on if y our thinking is ev olv ing here?
................................................................................................................................................................................................................................
A
David A. Zinsner
Vice President, Finance and Chief Financial Officer, Analog Devices, Inc.
I think we're alway s going to be on the conserv ativ e side. I think what is approaching $5 billion of ca sh is way
more conserv ativ e than we needed to be. So I think it's a function of getting back more to a balance sheet that
reflects conserv atism, but is not so inefficient that it's causing shareholder return to be diminished in any way .
When I first got here in the first quarter of 2009 that was right at the downturn. In fact, it was my first act as CFO,
I think was to preannounce the quarter and was a tough quarter. But in any ev ent, ev en in that quarter we
generated somewhere in the neighborhood of $50 million of cash flow. So this is a company that can, through all
the perturbations that go on in the semiconductor space, we continue to generate cash through thick and thin.
And so I think ov er time that does not require a balance sheet obviously that ha s tons of cash and no lev erage. So I
think y ou will see us take adv antage of the cash that we hav e in v arious way s, buy backs, pay ing the div idend,
acquisitions, and just slowly kind of align the balance sheet to one that recognizes that we're consistently cash flow
positiv e regardless of the circumstances.
................................................................................................................................................................................................................................
Q
Does that mean that y ou could see y ourself being in a net debt position at some point in the future?
................................................................................................................................................................................................................................
David A. Zinsner
Vice President, Finance and Chief Financial Officer, Analog Devices, Inc.
A
I mean it's difficult to say . It depends obviously on what opportunities are out there, but we could certainly be in a
position of net debt and get along quite well.
................................................................................................................................................................................................................................
Ali Husain
Director-Investor Relations, Analog Devices, Inc.
Any more questions for this session? Well, I guess that about does it, folks. Thank y ou for joining us here for our
201 4 Analy st Day . And y ou may proceed to lunch. Thank y ou.
................................................................................................................................................................................................................................
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Analog Devices, Inc. (ADI)
Analyst Day
Corrected Transcript
17-Jun-2014
Vincent T. Roche
President, Chief Executive Officer & Director, Analog Devices, Inc.
Thank y ou.
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