Q1 2022 Analog Devices Inc Earnings Call
[music].
Good morning, and welcome to the analog devices first quarter fiscal 2022 earnings conference call, which is being audio webcast via telephone and over the web I'd now like to introduce your host for today's call Mr. Michael Lucarelli, Vice President of Investor Relations Sir.
Floor is yours.
Thank you Holly and good morning, everybody. Thanks for joining our first quarter fiscal 'twenty two conference call with me on the call today are Adi's CEO , Vincent Roche Adi's CFO Prashant Mahindra, Russia.
For anyone who missed the release you can find it and relating financial schedules at investor analog Dot com now onto the disclosures.
The information we're about to discuss includes forward looking statements, which are subject to certain risks and uncertainties. As further described in our earnings release.
Your attic reports and other materials filed with SEC actual results could differ materially from the forward looking information as these statements reflect our expectations only as the date of this call. We undertake no obligation to update these statements except as required by law.
Our comments today will also include non-GAAP financial measures, which exclude special items when comparing our results to our historical performance special items are also excluded from prior periods reconciliations of these non-GAAP measures to their most directly comparable GAAP measures and it doesn't information about our non-GAAP measures are included in today's earnings release.
Yeah.
Okay with that I'll turn it over to Adi's CEO , Vincent Roche Vince well.
Well, thanks, Mike and good morning to everybody. So once again <unk> delivered another record quarter, marking a strong start to the year our continued success.
It was driven by our unparalleled high performance portfolio and our teams strong operational execution and intense customer focus.
Enabling us to better meet the growing demand for our products.
Now looking at our first quarter results revenue was $2 $68 billion up more than 20% year over year on a combined basis growth was broad based with all segments up double digits year over year.
Led by industrial and automotive.
Gross margin expanded to 72% and operating margin increased to over 45%.
Adjusted EPS was $1 94, a 35% year over a year.
Now it's been nearly six months since we closed the Maxim transaction overall, we've made great progress on the integration today.
The feedback we've received from customers and our teams has been overwhelmingly positive and we've taken important steps to strengthen our operations.
And the many exchanges have had with our customers. They have expressed their enthusiasm for the combination recognizing the increased value that.
And Maxim together bring to the market.
Broadly speaking Adi is viewed as a trusted long term focused partner that takes a customer first approach to our engagements.
We offer a unique combination of best in class engineering and unmatched domain expertise.
With a high performance portfolio.
And then for microwave to bits from none of what's the kilowatts and from sensor to cloud.
This is enabling us to develop more complete solutions that define the edge of possible.
The acquisition of Maxim increases the breadth and depth of our high performance portfolio, especially in power management here.
Here are more comprehensive power portfolio allows us to better address opportunities across industrial automotive data center connectivity and consumers.
Similar to the cross selling activity, we implemented with the LTC portfolio, we are aggressively identifying areas to attach this par portfolio with Adi has leadership positions in analog mixed signal and RF.
And with our extended sales and field organizations, we're better positioned to uncover cross selling opportunities and serve existing and new customers, who have an increased need for application and design support solutions level.
I've also been highly engaged with our teams across Adi.
The combination has unleashed excitement throughout the organization, there's a burning desire to capitalize on the numerous opportunities to accelerate revenue growth.
And I'm already seeing firsthand the benefits of our collaboration from operations to engineering to sales, making be excited for what's ahead.
Turning firstly to our manufacturing operations.
The analog sector is characterized by fragmentation with diversity across products customers applications and markets.
To tackle this complexity, we utilize a hybrid manufacturing strategy providing.
Providing us with vast capabilities across technology.
Processes and packaging necessary to create innovative solutions from seven nanometers, seven microns for our 125000 customers.
The combination with Maxim enhances our hybrid manufacturing model by enabling a more diverse network of internal facilities and external partners.
This increases our access to technologies and capabilities, which in turn expand the scale and the scope of our offerings.
We're investing in our internal manufacturing operations to build a more robust and cost effective model.
To that end.
We're expanding the footprint of our Oregon and Limerick Fabs.
And adding significant capital to our test operations.
Facilities in the Philippines, Thailand, and Malaysia.
These investments will grow our capacity this year and into 2023 provides seamless product qualifications for our customers and give us greater optionality between our internal facilities and foundry partners.
Now ahead of our Investor day in April I'd like to preview some of the secular growth trends that make us most excited about the future of our industry and for our company.
In the industrial market were seeing the compounding effect of many concurrent secular trends for.
For example, our instrumentation business, which is comprised of automated test equipment electronic test and measurement and scientific instruments.
It is aligned with growth trends from connectivity to evs to sustainability.
The growing technology complexity of these applications requires Adi is more advanced metrology solutions, enabling us to continue increasing our son.
Our factory automation business is empowering another critical trend of more intelligent and connected factories.
Here, we support tens of thousands of customers of all sizes with our precision signal chain and power management sensing technologies and robust wired and wireless connectivity solutions.
And automotive electrification, we are the global leader in battery management systems for Evs with double the market share of our nearest competitor.
We're continuing to build momentum globally.
And then the last quarter, we have recorded several new design wins from premium European auto manufacturers.
Electrification is not exclusive to the automotive sector, there was a necessary shift to sustainable energy sources to deliver the environmental benefits of electrification.
This vision requires green energy generation with a smart grid, which digitally monitors into just performance and also energy storage system, which mitigate the intermittency issues related to variable user demand.
Adi supports this infrastructure with control and sensing technologies as well as accurate monitoring and efficient power conversion to ensure the grid parameters remain stable.
Within automotive, we're also seeing manufacturers create a more immersive human experience by digitizing the cabin.
This requires increased bandwidth lower latency and more efficient power management, creating new opportunities for <unk> connectivity and power portfolios for example.
Our audio system solutions with signal processing, <unk> connectivity and road noise cancellation provide customers with the highest fidelity solution, while also reducing the vehicle base.
In addition, our <unk> franchise and functional safety certified power management solutions are critical and Architected and efficiently powering advanced driver assistant systems.
Overall.
Our market leading positions in BMS audio systems, and <unk> combined with our complementary customer bases position, our automotive franchise to deliver strong growth in the years ahead.
Turning now to advanced Communications networks.
And wireless Adi's market, leading software defined transceiver portfolio is enabling next generation communications systems.
Traditional <unk> to overrun to low Earth orbit satellites, and we're expanding our Sam with the industry's first transceiver that includes a fully integrated digital front end.
In wireline optical control and power portfolios are critical to tackling the exponential growth in bandwidth and compute power of carrier networks and Hyperscale data centers.
Here, we see a large and underserved opportunity for Adi.
So with that backdrop, we look forward to expanding on these areas in more at our Investor day with our senior leadership team.
So in closing ATI is the leader in innovating at the edge, we have an industry leading high performance portfolio that continues to benefit from the acceleration of mass digitalization across industries and with Maxim our portfolio has increased in breadth and depth.
And we see even more opportunity than ever to capture additional market share and I'm very optimistic about what our future holds.
And so with that.
<unk> over to <unk> to take us through the financial details.
Thank you Vince Good morning, everyone. Let me add my welcome to our first quarter earnings call.
My comments today with the exception of revenue will be on an adjusted basis, which excludes special items outlined in today's press release.
The revenue commentary is on a pro forma basis and includes pre acquisition Maxim revenue in the comparable periods.
Adi delivered a very strong first quarter with.
With record revenue profitability and earnings.
These results reflect the secular demand for adi's products, capturing synergies and effectively passing on inflationary costs.
Our manufacturing team is diligently securing additional internal and external capacity.
Orders remained robust across all our markets and our backlog continues to grow.
This sets the stage for continued sequential growth through the balance of fiscal 2022.
So for the first quarter.
Revenue of $2 six 8 billion finished near the high end of our outlook with double digit growth across all end markets and geographies.
This marks our fourth consecutive quarter of record revenue and eight straight up sequential growth.
Looking at our end market performance for the quarter.
Industrial our most diverse and profitable market represented 50% of revenue and achieved a new all time high <unk>.
Industrial has grown more than 20% year over year for five straight quarters, underscoring our strong market positioning supported by numerous secular tailwind.
Including automation digital health care sustainable energy aerospace and instrumentation.
Automotive, which represented 21% of revenue achieved another record with every major application posting double digit year over year growth.
Our battery management system offering continues to outperform and represents over 15% of automotive revenue underscoring Adi's leadership and electric powertrains.
Additionally, secular content growth inside the cabin continues to drive both the <unk> and GM of cell connectivity franchises to new Heights.
Communications represented 15% of revenue and exhibited strength in wireless and wireline.
We are in the early days of fiber deployment and expect global rollout led by North America to accelerate in 2022 and beyond.
And in wireline demand remained strong as carriers and hyper scaler continue to upgrade their cloud infrastructure from long haul to data center.
And lastly, consumer represented 14% of revenue and was in line with seasonality in.
Importantly, we continue to grow year over year supported by strategic investments aimed at diversifying our customer and application mix the.
The first quarter demonstrated our increased portfolio breadth as all segments achieved growth, including professional audio video gaming Wearables durables and personal electronics.
Now looking at the P&L.
Gross margin increased 100 basis points sequentially, and 190 basis points year over year.
<unk> and a record 71, 9%.
Favorable product mix higher utilization and synergies were key drivers of the increase.
Opex in the quarter was $702 million better than anticipated due to faster synergy progress.
Operating margin of 45, eight increased 510 basis points year over year.
Non op expenses were $44 million in line with last.
Quarter, and our tax rate for the quarter was approximately 13%.
All told adjusted EPS of $1 94 increased 35%.
Our record profitability this quarter was driven by the stronger revenue growth as well as the synergy capture.
And now moving on to the balance sheet, we ended the quarter with approximately $1 8 billion of cash and equivalents and on a trailing 12 month pro forma basis, our net leverage ratio was just under one turn.
Days of inventory increased modestly sequentially to 115 and.
And channel inventory remains below the low end of our seven to eight week target.
Looking at cash flow items, Capex was $111 million for the quarter and $387 million over the trailing 12 months.
As a reminder, during fiscal 2022, we plan to invest 6% to 8% of revenue to significantly grow our front end back end capacity and build a more resilient hybrid manufacturing model for the long term.
Importantly, this higher level of Capex will not hinder our capital return commitments.
Over the trailing 12 months, we generated $2 seven 8 billion of free cash flow or 33% of revenue.
Our free cash flow margin was lower by about 3% due to costs related to the Maxim acquisition.
Over the same time period, we've returned approximately $4 2 billion or more than a 150% of free cash flow by a purchases and dividends.
And as a reminder, we target 100% free cash flow return.
We aim to use 40% to 60% of our free cash flow to consistently grow our dividend with the remaining free cash flow used for share repo.
And just yesterday, we announced a 10% increase to our quarterly dividend, marking the fourth consecutive year of double digit increases we have now raised our dividend 19 times in the past 18 years.
Our ASR program concluded in the first quarter and as a result, we retired approximately $14 4 million shares.
We are now more than halfway towards executing our $5 billion repo commitment by the end of calendar 2022.
So let me finish with the second quarter outlook.
Revenue is expected to be $2 8 billion, plus or minus 100 million.
At the midpoint, we expect all <unk> markets to grow sequentially and for consumer to be flattish.
At the midpoint operating margin is expected to be 46, 5% plus or minus 70 bps.
This outlook includes approximately $100 million of annual run rate synergies split roughly evenly between cost of goods and opex as we exit the second quarter.
Our tax rate is expected to be approximately 13%.
So based on these inputs adjusted EPS should be around $2 seven.
Plus or minus 10.
And finally, let me end with an invitation.
We are holding our Investor day on April five where we look forward to sharing adi's long term strategy, our new financial model and a detailed update on all phases of our synergy roadmap, we hope to see many of you in person at our headquarters right outside of Boston.
Where we will offer unique customer led interactive technology demonstrations and displays throughout the day.
This includes showcasing our wireless battery management system for Evs and much more.
I'll hand, it off to Mike for the Q&A.
Thanks, Vishal, let's get the Q&A session. We ask that you limit yourself to one question in order to allow for additional participants on the call. This morning.
A follow up question. Please re queue and we'll take a question if time allows with that we have our first question. Please.
And those participating by telephone dialing if you ask a question. Please press star and the number one on your telephone. If your question has been answered and you wish to remove yourself from the queue. Just press the pound key if you were listening on a speaker phone. Please pick up the handset when asking your question. Thank you and we'll pause for just a moment to compile the.
The Q&A roster.
And our first question is going to come from the line.
Vivek Arya with Bank of America Securities.
Alright. Thank you for taking my question and good to see the strong execution.
Vince I was hoping you could maybe give a city.
What do you see as kind of the supply demand balance in your different end markets and if as part of that he could help us understand what role is pricing playing in the industry today and cannot be sticky over time.
Well need to revert back as it is more trailing edge capacity that comes online including from your other large U S competitors.
Good morning, Vivek I'm going to I'm going to just do the setup for that.
Supply and demand environment. So what we're seeing in 2022 looks a lot like 2021. So we expect that we will be chasing demand throughout the year. We've got we've got continued order strength across the business.
As I said in the prepared remarks, all end markets. All geographies are looking strong and our backlog is continuing to expand so we.
We delivered eight sequential quarters of growth and that's supported by our manufacturing team continued to increase.
Ability to supply and as I mentioned in the remarks, we expect that increase to be progressive over the balance of the year, while they continue to debottleneck. The process. So that will that will help us.
Drive sequential growth.
From a.
From a supply standpoint, we're going to continue to look at.
The balance here and keep an eye on how things are going but our view is that this will this will run through the balance of this year and we expect that will probably still have a little bit of catching up to do in in early 'twenty three.
On pricing Thats a longer question. So let me split that into two pieces why don't I talk margins and then I'll, let Vince talk kind of pricing strategy. So.
For margins, we along with the rest of the industry have had been.
Passing on the higher cost that we've been seeing so weird.
We're not using this environment to take advantage of customer, but really targeting to maintain gross margins. So we have been pushing those costs up but built into those margins.
A number of items, including the synergy execution, which is coming in faster than we thought some benefit of mix higher revenue because we are actually shipping more units. So I think on a quarterly basis unit shipment is up double digits.
Year over year.
And then of course with all of this unit increase in unit shipment Utilizations are also quite strong. So there's a number of benefits that are that are underlying the.
The margin piece, but.
Finish off on pricing in the past to Vince to to maybe talk about how we're how he's talking to customers.
Yes, Vivek just to a couple of other color comments here.
So we've historically managed our pricing to reflect the value that we deliver to our customers. We've got an innovation premium for our products.
And also we have very very long life products in our portfolio and customers pay us to keep security of supply for the long term.
And that's an approach that we intend to keep in perpetuity.
I think also pricing for us is more structural than cyclical.
I think.
The last couple of years have really brought semiconductors from the background into the foreground and shown the importance of semiconductors to the modern digital economy.
I think customers understand.
The value.
On a more meaningful way.
Yes.
So I think as <unk> said.
Cost inflation, we are in the post Moore's law era.
Cost inflation, I think is going to be a long term effects of the.
Economic dynamic of the semiconductor business.
So I expect that.
Cost increases will moderate, but there will be inflation I think for the.
For the medium to long term here.
So.
I think when you put it altogether the industry is in a better place to capture more of the value that has been generating over these many many decades.
I think we will benefit from that as a company based on the quality of our innovation, but also the new dynamics in the industry.
Thanks for that will go to next question. Please.
Our next question will come from the line of John Pitzer with Credit Suisse.
Yes. Good afternoon. Good morning, guys. Thanks for let me ask the question just to follow up on the pricing side of things.
And so I'm just kind of curious what this year's revenue growth be more influenced by pricing than last year and to the extent that the pricing environment seems to be structurally changing or are there any parameters you can give us historically pricing did X and now we think it's going to do.
Sort of X plus it because and the reason why I asked the question as you know we look at your relative growth rates to some of the end markets that you participate in and Youre clearly growing significantly faster than that there is a content side of things, but that relative growth does kind of make people concerned about inventory levels and so we look at inventory and revenue, we probably should be looking at their own units.
I'm just kind of curious how we should try to try to factor in that pricing dynamic.
John Let me, let me just set the numbers on that so this year pricing.
I should say for the current quarter pricing counts for less than half the growth. So that kind of helps you size. It and we had said on the prior quarter's call that in 2021, we had cost increases that were coming at us faster than we were able to push price up because we were in the process of.
Closing the deal on Maxim and beginning the integration. So we did expect more pricing tailwind this year, because we actually had inflationary cost headwind last year.
Yeah, I'd say, John one of the comments.
I've said, many many times before with us for several years to this step function increase due to inflation in prices and cost of goods and then prices.
Our pricing.
Laws.
For many many years, we had been we had to fill a gap.
We had to ship more units to to keep up with the annual price reductions I would say we were up some clothing towards <unk>.
Zero price reduction on the average, adding more asp's to our products for the innovation that we're creating.
And I think that for the long term.
It is going to be a better way to gauge adi's pricing methodologies. So we're pricing for value.
And.
We're injecting significant amounts of R&D into the company to make sure that we keep ahead of our customers' needs.
So that'll be I think the primary dynamic for value capture.
For Adi for the years ahead.
Thanks, John .
Our next question will come from the line of <unk>.
Deep rahmani with UBS.
Hi, Thanks for taking my question.
I just wanted to ask about your automotive business just given.
Oh, how automotive production and sort of sharply rebounding in 2022.
How do you feel about how much your automotive business can outgrow SAR or even production in 2022, how should we think about that thank you.
Yeah. So I think right now the supply chain is very very leading that.
That is pretty well established.
I've talked with a lot of.
Automotive companies over the last the last six months or so.
Sensors.
Everything that we're shipping is being used.
I don't see any stockpiling so.
Content in vehicles is increasing every year.
The.
The value generation activity in the auto sector is.
It's driven by semiconductors.
Elsewhere so.
We're seeing.
Content growth of 5% to 10% per year and I think.
That will continue for.
For the foreseeable future.
What we're seeing I think the shift towards Evs I've been surprised by the speed of the shift myself.
And the <unk> 2021 period.
And.
Our customers are tilting the content the semiconductor content towards premium models. So.
That accelerates the content growth.
Growth story versus history.
Long term.
We expect to be able to grow our business in the automotive sector was a multiple of Saar.
We see tremendous opportunity to continue to drive our share and growth story of Evs.
And Kevin connectivity.
No.
We've got a very very strong signal processing franchise to which we have connected our <unk> to be connectivity road noise cancellations.
Our new value creator in the cabin.
And we're very excited by the Msos the connectivity portfolio of the high speed connectivity portfolio was up.
We have been hurt us from the legacy Maxim.
Aggressive plans to continue to build out.
Both in terms of.
Product development as well.
Our manufacturing footprint.
But not least power, where we're underrepresented in general in power management, I'd say across the industry and particularly in automotive and industrial so I think the combined portfolio.
Adi and Maxim gives us a tremendous opportunity to tap in to what is actually the largest sector power is the largest sector of the of the unlock market and it's growing.
A compounded rate so.
That gives you a sense for automotive thinking.
Thanks Marty.
Our next question will come from the line of Toshi Hari with Goldman Sachs.
Hi, good morning, Thanks, so much for taking the question and congrats on the strong execution.
First off I wanted to ask about your synergy capture in the quarter and how to think about synergies going forward in your prepared remarks, I think you talked about earlier than expected synergy capture should we consider this as kind of a pull in of synergies or.
Would it be fair to assume that the phase one target of $2 75 is a little bit more on the conservative side.
And then I guess additionally.
On phase two I realize its kind of early but you had talked about.
Potentially looking at your manufacturing footprint.
Similar to how you did with the with the linear is that still the plan or could things change given the stronger demand backdrop. Thank you. Yes. Good good good question Toshi and a great setup to invite folks to join US in April and we're going to answer all those questions.
In the last call, we talked about $20 million of synergies was realized in fourth quarter, and we said that.
There would be minimal impact in the first half before ramping more aggressively into the second half.
We've moved faster than than originally planned and we captured more earlier, so we're going to exit the second quarter at about $100 million of that $2 75, and as I said on the in the remarks, it's roughly split between both cost of goods and Opex.
We will give you an update on that 275 in terms of how much. We believe we can actually achieve in that first phase one time period, we'll do that at the at the.
April earning Investor Day, Vivek will also specifically talk about his plans and what he is has high confidence on for phase two of the.
The cost synergies and then our head of our Chief customer officer is going to talk about the revenue synergies that we're expecting from the combination. So we'll lay all that out for you. When we see you here in Boston in a couple of weeks.
Sounds good thank you.
Thank you. Our next question will come from Stacy <unk> with Bernstein research.
Hey, guys. Thanks for taking my questions.
I wanted to ask about gross margin, so I hear what youre, saying on pricing it sounds like it's a revenue boost but not so much a margin boost yet, but I just look at the company. The Adi Standalone was kind of you know 70 to maybe low Seventy's maxon was kind of mid to high <unk> and.
And you're doing 72% out of the gate.
Is this mostly just utilization and mix are the synergies and it sounds like you've got more synergies coming you've got revenue going through the year should we be thinking about the current gross margin leverage level, you just put into Q1 as sort of being the bottom for the year is as you continue to progress.
Yes, Stacy let me, let me just clarify that.
It would be incorrect to assume that there was no benefit from pricing in the gross margins what I wanted to clarify earlier and the response was embedded in that in that margin improvement is the synergy faster synergy execution, which I just answered <unk> question, the mix, which we talked about in the prepared remarks again very strong industrial.
At 50% is great for us.
And then higher unit volume because we are up on a unit basis double digits and and utilization and then pricing also fits into that so they're all elements of that in terms of how to think about the gross margin on a go forward basis.
We'll share the new operating model, where the financial model for the company in April , but I will preview to say that our focus continues to be on how do we drive the best revenue growth balancing that gross margin. So as we've met with investors, there's pretty uniform agreement that what they'd like to see.
He is higher revenue growth and make the trades that are necessary on margin to be able to deliver higher revenue growth. So.
We'll talk more about the model in Investor day, but I would not I would not be encouraging folks to be modeling very high gross margin numbers over the long term.
Is there any reason gross margin Stacy and how it trends, we don't guide gross margins Bob I'll give you some context around if you look at <unk> is usually up a bit.
Embedded in our outlook in the back half as you're about flat from there that kind of helps you from a kind of near term 2022 outlook and at the Investor Day, We'll talk more about the long term outlook for the business.
That's helpful. Thank you so much.
Anytime.
Our next question will come from the line of tourists van Berg with Stifel.
Yes, Thank you and congratulations on the record results.
Could you just talk a little bit more about your capacity plans you talked about increasing capex, 6% to 8%. This year I don't know if thats sort of that first year or more to come and is there any way for you to quantify what that does as far as capacity expansion. I know you have a hybrid model and this is a moving target, but any color you can share with us how much capacity.
The city, you're going to have that that'd be great. Thank you.
Yes, so thanks, Tori well first off if we just take it from a high level first we've always utilized a hybrid manufacturing model of Adi.
It gives us the reach of process technology and capabilities that we need.
To support.
The sheer breadth of our portfolio, which is.
More than 75000 unique product skus.
We're supplying a 125000 customers.
So yeah.
I think.
When we think about the long term, we will continue to use the benefits of this hybrid model for Optionality resilience and the availability of technology. So.
Overall the.
The business that we're in it is.
Given that we're approaching the world with a hybrid mentality.
Our business is less capital intensive.
It also gives us as I said resiliency in terms of gross margin.
And long term access to more options for process technology et cetera et cetera. So.
I'll hand, it over to Sean who will make a few comments on the.
The investments that we're making and how we're going to strengthen the model.
Yes, Corey I think your question was specifically related to Capex. So let me just let me kind of sized it at a high level.
So we said that our capex.
It's going to be doubling in 2022 and were targeting somewhere between 6% to 8%, which is above our historical long term rate of 4% and that Capex is being used for internal capacity, specifically that can swing in and out so it helps us with optionality and Thats an important element of the.
Manufacturing model that Vince talked about is being able to use that same capacity.
Or volume when we need it or utilization if the market should not have the same level of demand as as they do today.
So the the shells of the building are complete and Vince mentioned in his prepared remarks that we were adding in.
Expanding our footprints in Oregon, and Limerick and also were adding a significant amount of testers to our backend in the fills Thailand and the LTC site that we acquired in Malaysia.
Very helpful. Thank you.
Thanks, Laura. Thank you. Our next question will come from the line of Bruce <unk>.
<unk> <unk> with BMO market.
Alright, Thank you very much.
For Sean I wanted to come back to the inventory.
The GAAP basis, which is consistently how we measure for all companies.
It's pretty low versus the other.
Rich and versus the long term target that you've laid out and on an absolute dollar basis. It was down quite a bit as well. So I was just wondering.
Part of it is probably from the accounting.
If you had from the Maxim acquisition could you just help us understand.
Was there a draw down internally and.
I heard you talk about where channel inventory was so what should we expect inventory to do.
On an absolute dollar basis as we go through the year. Thank you.
Yes, yes, great question. So first let me say that you are absolutely right. There is a bunch of purchase accounting that is flowing through the balance sheet. So the inventory numbers, probably have a bit more noise than we can we can handle that with your team offline, but let me let me high level kind of help folks to think about.
The inventory so the channel remains very very lean now that is not the not the not our balance sheet, but the inventory in the channel that remains very lean well below our seven to eight week target. We are having difficulty building inventory in the channel we get it into the channel and it moves out very quickly.
Within Adi's books, our days of inventory are up slightly.
Primarily as I mentioned that we are planning to to see revenue increase sequentially for the balance of the year. So you have the you have the the raw material on the witness in sort of in the middle of the of the process now before that comes out and that is.
That's up we also had a little bit of finished goods up but that was purely timing on when the quarter ended versus where the goods were in the in the transit process. So I wouldn't read anything into our increase in finished goods except to say it. It's just it happened to be when the when the drawbridge closed for the quarter.
Got it thank you.
Hey, good operation will go to our last question. Please alright, our last question will come from the line of.
Lynn <unk> with J P. Morgan.
Good morning, guys. Congratulations on the strong results and execution you know if I look at cloud and Hyperscale data Center Capex spending for this year, that's expected to grow like 30% and.
And I know that in the data center end market at some for example, they provide the critical processor power management for NV.
In videos datacenter Gpus, they provide power management for Google's flagship AI processors.
On the Adi side, you guys provide server power.
Power supply solutions and optical networking solutions. So I guess my question is given the strong backdrop with data center, a big driver for your Comms business in Q1, how do you see data center growth for the full year and how big is data center as a percent of your overall com business.
I'll answer it backwards I'll start with the kind of the sizing of that center for you.
Our cost is about 15% of total revenue.
What about evenly evenly between wireless and wireline about 50, 50% in each of those and if you look at the wireline piece, that's where data centers embedded is probably about 30% 35% of that relates to the data center, what we ship into that you outlined it pretty well on that and go through it again, but I'll pass it to Vincent for Shandong Province to talk little more about what the opportunity is in data center and why.
We're excited.
Yes, Thanks, Mike.
We have I consider combined with Maxim a strong position in optical connectivity.
As well as carrier networks, but also power management, whether it's the.
Power system monitoring.
Energy monitoring.
And actually power delivery itself.
We see that as a phenomenal opportunity so.
My sense is and we can talk more about this at the Investor day, but we'll we'll.
Unpack the story for you, but my sense is that we.
We can double.
Our data center and cloud business over the next four to five years.
Alright, great. Thank you.
And thanks, everyone for joining us this morning, a copy of the transcript and all about reconciliations will be available on our website. We hope you can join us at our in person at Investor Day April 5th.
Thanks for joining the call and interest in analog devices have a good day.
This concludes today's analog devices conference call you may now disconnect.
[music].
Okay.
And then.
Okay.
[music].
Yeah.
Okay.
Okay.
Hum.
[music].
All right.
[music].
Yes.
[music].
Yeah.
Okay.
Sure.
[music].
Yes.
Okay.
Yes.
Yeah.
Okay.
Yeah.
Thank you.
Yes.
[music].
Yes.
Okay.
Yes.
Yeah.
Okay.
Okay.
[music].
Yes.
Sure.
Okay.
[music].
Okay.
Yes.
No.
[music].
Okay.
Yes.
And then.
Okay.
[music].
Sure.
Yes.
Okay.
Okay.
Hum.
[music].
Okay.
[music].
Okay.
Sure.
Hum.
[music].
Okay.
[music].
Yes.
[music].
Yes.
Yes.
Hum.
Okay.
Yes.
[music].
Yeah.
[music].
Hum.
[music].
Yes.
Yes.
Yes.
Yes.