Q3 2022 Analog Devices Inc Earnings Call
Good morning, and welcome to the analog devices third quarter fiscal year 2022 earnings conference call, which is being audio webcast via telephone and over the web.
I'd like now to introduce your host for today's call Mr. Michael Lucarelli, Vice President Investor Relations and F. P N a sir the floor is yours.
Thank you, Matt and good morning, everybody. Thanks for joining our third quarter of fiscal 2022 call.
With me on the call today are Adi's, CEO and chair of Vincent Roche Adi's CFO Prashant My handwriting Rajat.
For anyone who missed the release you can find it and relating financial schedules at investor analog Dot com.
The disclosures.
The information we're about to discuss includes forward looking statements, which are subject to certain risks and uncertainties.
As we described in the earnings release, and our periodic 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 additional information about our non-GAAP measures are included in today's earnings release. Please note. We've also publish our annual ESG report last quarter titled future forward you can be.
On the IR webpage.
With that I'll turn the call over to Adi's CEO and chair.
Vince thank.
Hey, Mike and good morning to you all what I'm pleased to share that we executed very well.
Amid a dynamic macro backdrop.
We delivered another quarter of record results driven by continued operational excellence strong financial discipline and resilient demand for our diverse portfolio of innovation rich products.
Revenue was $3 1 billion up 24% year over year on a combined basis.
And above the midpoint of our outlook.
Strength was broad based with double digit growth in every end market, our third quarter profitability reflects adi's innovation premium.
Strong operating leverage with gross and operating margins of 74 and 50% respectively.
Adjusted earnings per share of $2 52 finished at the high end of our outlook, marking another new high.
I'm exceptionally pleased with our results.
Want to thank our employees for their continued hard work and dedication to our success and importantly to the success of our customers.
Yeah.
At Adi innovation is ingrained in our culture fueled by an unwavering commitment to robust R&D investments over the last 12 months, we've invested over $1 $7 billion of Northern D.
The key facets to our innovation driven success is our dedication to extensive and deep customer engagements.
Which enables us to collaborate with them in solving their toughest problems.
Now I'd like to share some recent customer highlights.
In automotive, we reinforced our market, leading position and BMS with wins at two premium European auto manufacturers.
One of these wins was with our wireless BMS solution. This marks the fourth OEM to adopt wireless BMS.
As customer interest continues to build for this unique technology.
And sustainable energy, we announced a design win with another group on the quantum edge device used to digitally monitored electric grids.
Adi is unmatched precision measurement capabilities are critical to creating a more resilient and flexible grid to help advance efficient electrification globally.
In health care. The recently released wireless hospital monitoring system by GE healthcare in Europe uses Adi solutions across signal chain and power RF Mcu's and sensors.
Wearable system enables wireless continuous monitoring to detect patients deterioration earlier, hoping to improve outcomes.
Today, I'd like to profile, our $1 $5 billion plus consumer franchise, a business that plays an important role in our long term profitable growth strategy.
Given the recent negative data points surrounding the consumer end market one day wonder quite highlight this market no.
But that's just the reason our consumer business is built differently.
In the third quarter, we posted our seventh consecutive growth quarter.
While we are not immune to macro slowdown.
We have a line this business to the high end of the market, where performance really matters and into applications, where our differentiation is truly valued.
The composition of our consumer franchise is indeed unique approximately 30% of our revenue comes from long lifecycle Pro Sumer applications.
<unk> next generation conferencing systems professional audio video and home theater.
The remaining revenue and consumer relates to portables, including fast growing wearables and durables as well as premium smartphones.
Yeah.
Taking a step back over the last five years, plus we have reconfigured our consumer business to increase diversity across customers products and applications.
Better drive growth and limit volatility while enhancing profitability.
The addition of Maxim further enhances our diversity and expanded our portfolio.
Over this time, we've increased our product skus to just over 10000 and expanded our customer count to more than 3000.
Importantly, the composition of this business is quite similar to our B to B markets with no single product contributing more than a couple of percentage points to total ATI sales.
The velocity of innovation in the consumer market is appealing.
It allows us to accelerate technology development and commercialize solutions quickly scale overtime we.
We take these breakthrough solutions into other markets to create new waves of growth and drive strong profitability and cash flow.
For example, we have leveraged our consumer audio expertise into the automotive market.
This capability was demonstrated at our Investor day.
Where we showcased an electric vehicle with Dolby Atmos.
Uses our shark DSP and software that was first proven in the consumer business.
Additionally, we've also leveraged R&D investments from our core franchises into the consumer market to that end, our high precision converters and industrial instrumentation. For example has been repurposed to solve similar challenges for stabilization and smartphone campus in pressure sensing and Wearables.
Not only have we created a highly diverse and profitable business.
But also one that is aimed at key growth drivers that position us to grow at a high single digit rate over the long term for example, our pro Sumer growth has been revitalized as companies implement future of work plans that encompass more immersive enterprise video conferencing here.
Here's the breadth of our portfolio across DSP analog mixed signal and power management neighborhoods to solve the entire customer challenge from high bandwidth connectivity to video resolution and sound quality.
I'm, turning now a moment to the portables market.
And horrible as we ship into the majority of premium wireless stereo ear buds.
Our newest offerings include software augmented hearing algorithms and optimize power.
To reduce the size and improved audio fidelity, while increasing our value per system by over three times.
In Wearables, we're a leader in personal wellness products with our sensing solutions designed into over 50% of products today.
There was a convergence of these personal wellness products and clinical grade vital signs monitoring solutions.
Could unlock new opportunities for Adi.
And then premium smartphones, we're expanding our share in content at key customers.
Which is providing us additional diversification and stimulating new growth vectors.
And emerging opportunity is the most adverse areas breadth of hardware software algorithms and domain expertise.
Gives us an ability to provide complete subsystem solutions.
While we're still in the early days of course momentum is building.
And we have design wins in multiple next generation a R V. Our headsets.
Across all of these consumer applications power management is becoming ever more critical.
Customers are adding more features into smaller spaces.
While consumers are demanding longer battery life.
<unk> doubled the size of our low power portfolio and increased our consumer power sun by over $1 billion.
We're already beginning to see the cross sell benefits over a complementary customer bases and synergistic portfolios with wins in both Wearables and conferencing systems.
So in summary, I'm very encouraged with the strides we've taken to reignite growth in our consumer business and with a record opportunity pipeline.
And significant synergy potential I believe we're in a position to deliver consistent growth over the long term.
Now before passing over to <unk> I'd like to make some comments on the current business environment.
Obviously, the macro backdrop is dynamic.
And it's clear that we're at an inflection point.
Economic conditions are beginning to impact demand.
With order showing order slowing later in the quarter and cancellations increasing slightly.
<unk> will provide additional details on these dynamics in his remarks.
Adi successfully navigated macro challenges many many times before in our 57 year history, we've created the premier analog franchise with an unmatched diversity of products customers and applications.
And we've invested in a hybrid manufacturing model that better adapt to demand fluctuations.
These characteristics and still a resiliency into our business to mitigate market weaknesses sustained profitability and enable investment in our business through economic cycles to focus on playing a long game.
And with that I'll hand, it over 2%.
Thank you Vince.
Let me add my welcome to our third 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.
Third quarter revenue of $3 1 billion finished above the midpoint of our outlook and marked our sixth consecutive quarterly record.
We look at third quarter end market performance industrial our most diverse and profitable end market hit another all time high and represented 50% of growth.
50% of revenue growth was broad based with each of our major applications increasing sequentially.
Industrial revenue has now grown more than 20% year over year for seven straight quarters, underscoring ATI strong position and secular content growth across applications.
Automotive, which represented 21% of revenue achieved another record increasing 28% year over year.
The better mix of higher content premium vehicles combined with our growth engines are BMS G. M. S. L. A to b and better value capture is driving our outsized growth versus Saar.
Communications, which represented 16% of revenue achieved a quarterly record with strong year over year growth in both wireless and wireline.
<unk> wireline outpaced wireless with growing demand for our optical and power portfolios as carriers and hyperscale or invest to meet the ever growing demand for data.
And lastly, consumer represented 13% of revenue and has now grown year over year for seven consecutive quarters as Vince highlighted the diversity and growing design momentum across portables and pro Sumer is enabling us to grow despite the consumer market slowdown.
Now onto the rest of the P&L.
Gross margin was 74, 1% up 250 basis points year over year, driven by higher utilization favorable mix and synergy capture.
Opex in the quarter with 747 million, which reflects a full quarter of higher than normal merit increases.
Operating margin increased 650 basis points year over year, finishing at 51% toward the high end of our outlook.
Non op was $48 million and the tax rate for the quarter was 13, 2%.
All told EPS came in at a record $2 52 up 47% versus the third quarter of 2021.
On the balance sheet, we ended the quarter with over $1 5 billion of cash and equivalent days of inventory increased to 129, while channel inventory remained below the low end of our target range of seven to eight weeks.
For cash flow Capex for the quarter was $165 million and $526 million over the trailing 12 months.
Just under 5% of revenue.
We continue to expect elevated capex investment through 2023 to support the strategic expansion of our hybrid manufacturing model and these investments will strengthen our resiliency and support our long term growth outlook of 7% to 10% CAGR.
Over the trailing 12 months, we generated over $3 7 billion of free cash flow or 34% of revenue.
Included in our free cash flow or one time deal related cost, which amount to about 3% of revenue.
Okay.
With the intra quarter volatility, we opportunistically increased repo activity to $906 million.
And after approximately one year post the close of Maxim, we've repurchased $4 $4 billion worth of shares putting us on track to exceed our $5 billion commitment by the end of fiscal 'twenty two.
Including dividend payments, we returned approximately $6 billion to shareholders over the last 12 months or more than 6% of our market cap.
As a reminder, we target 100% free cash flow return.
We target to allocate 40% to 60% of our free cash flow to support a 10% dividend CAGR through the cycle with the remaining cash used for share count reduction.
Now before we move to the outlook I want to provide some additional details around demand.
In third quarter, our order book remains strong and backlog increased to a new record stretching well into mid 2023.
However orders moderated later in the quarter and as a result book to Bill was down from a quarter ago, but still well above one.
By market, we are seeing strength.
Persist in both industrial and automotive, which together represent over two thirds of our sales.
While consumer and comms were a bit softer.
We also saw a modest increase in cancellations and was not specific to any end market or geography.
Given these dynamics coupled with the macro backdrop, we believe it is prudent to take a more cautious stance.
As such we are only forecasting slight sequential revenue growth to 315 billion plus or minus $100 million.
Despite bookings backlog and higher supply that would all suggest a stronger growth.
At the midpoint, we expect all end markets to grow quarter over quarter.
Op margin is expected to be 53% plus or minus 70 bps.
Our tax rate is expected to be 13% to 14%.
And based on these inputs adjusted EPS is expected to be $2 57, plus.
Plus or minus 10 cents.
More broadly while the macro backdrop is dynamic our business has several aspects that position us quite well to manage further headwind. These include our diverse end market exposure, coupled with strong secular drivers that will help buffer our topline.
The flexibility of our hybrid manufacturing model gives us confidence in maintaining our 70% gross margin Florida.
And we also had several opex layers to support our industry, leading margins and maintain a solid return of cash to our investors.
So in closing my confidence to our path of $15 of EPS in the next five years remains high.
Let me now give it back to Mike for the Q&A. Thanks, Prashant, let's get to the Q&A session. We I'd tell you limit yourself to one question in order to allow for additional participants on the call. This morning. If you have a follow up question. Please re queue and we'll take your question. If time allows with that we have our first question. Please map.
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Yes.
Our first question will come from Vivek era with Banc of America Securities. Please go ahead.
Oh, Thanks for taking my question I, just wanted to clarify how much conservatism is in the Q4 outlook and then a.
But you know you know longer term than that what happens to the tightening leather.
Starting to see the bookings start to decelerate is pricing holding firm is it flat or down as customers start to think about next year. Thank you. Thank you for the question Vivek, Let me let me take the first part of that and then maybe I'll, let Vince speak to the pricing so.
We've been talking for a couple of quarters now that we were expecting a more meaningful increase in our ability to supply.
In the fourth quarter, and we had been building that with the installation of equipment that we've been having over the course of this year. So our supply our building supply is in excess of the guide that we put out there. In addition, our backlog actually increased sequentially from a into the into the third quarter to a new all time record.
And given kind of the strength in the backlog the book to Bill was still above one and increased supply.
It's very logical we could print a bigger number having said that we are very aware of the macro environment and a bit more softening in order activity that we saw towards the tail end of the quarter. So that's why we we kind of held back a little bit on the guide too to ensure that if this order softness does continue.
We are we're not we're not disappointing.
Vince you want to address the pricing question, yeah. Thanks, Vivek yeah. So.
Yeah, I think first and foremost we are seeing tremendous stability I don't expect to see any.
Work pressure on prices.
Even in a recessionary environment.
You know I think first and foremost our products reflect an innovation premium for the for the kind of value that we deliver to our customers.
Over lever the long pole in the pricing tend to either of the customer's bill of materials.
One other thing I would say, particularly in the high performance analog space.
The substitution cost or very very high so the disruption.
You know to a customer system design way way outweighs considerations for price reduction so where are we.
Obviously compete most intensively.
Price basis is to get the original sockets, but we have a long lifecycle products with tremendous stability very very high.
Substitution costs. So my sense is that pricing will remain very.
Very very steady.
Through the cycle.
Thank you. Thanks for that next question. Please.
Our next question will come from Vijay Muse with Evercore. Please go ahead, yes. Good morning. Thank you for taking the question I guess I'd like to focus on the slowdown in orders that you saw at the tail end of the quarter as well as the cancellations that you highlighted any any more kind of detail you can provide there as it really.
It's too so.
Segment of end markets geography, any color would be greatly appreciated. Thank you yeah. Thank you. Thanks. Thanks P. J, let me let me maybe talk about kind of the bookings momentum in a couple of different pieces. So first.
Third quarter results were clearly broad based strength, all end markets were up quarter over quarter and double digits year over year. So our sixth consecutive record the only geographic geography slash market that was down year over year with China consumer, but that that's a very small exposure for Adi.
Low very low single digits as a percentage of revenue.
From a bookings health standpoint for the third quarter orders were up again as I mentioned strongest trend for industrial and auto which represent about 70% of the business com.
Comms and consumer weaker, but we again, we increased our.
Backlog to another record another new all time high and that covers us well into 'twenty three.
Where we saw that change in demand was really cancellations tick modestly higher and I do say modestly it is.
We want to be fully transparent on this call. So we're calling it out but I wouldn't really put too much focus on the cancellation number but again in the spirit of transparency. We wanted to share that we did see that change in the demand profile and we also saw that the channel sell through began to moderate towards later in the quarter. So that is the.
The sell through from the channel or Pos.
Again to soften a bit versus what we were originally expecting.
Overall, the book to Bill was still above parity, but it was definitely lower than it was a quarter ago.
So as we set that guide for fourth quarter, given the uncertainty the changing trends in our business, we thought its prudent to take a more cautious stance and therefore, we're guiding up only slightly on a quarter over quarter basis. Despite as I mentioned in answering <unk> question, Despite having very strong backlog coverage good books.
<unk> and better supply, which would all suggest higher growth.
Thank you.
Thanks, Vijay next question.
Our next question will come from Ambridge service Saba with BMO capital. Please go ahead.
Hi, Good morning, Thank you I apologize for the background noise.
I just had a question.
Sean on the floor that you have laid out sort of gross margin.
Yeah.
Way above where margins bottomed out yet.
A real time basis.
And I'm asking this because I get this question a lot hey, what's the downside.
Our EPS projection for Adi.
If you could please help us understand kind of what are the underlying assumptions behind that as it relates to utilization inventory and then more importantly, what are you assuming for revenues to go down.
Sure sure. Thank you so maybe let's start with a reminder, that this company is structurally more profitable than we ever have been. The addition of maximum gives us the benefit of scale and we have the benefit of that hybrid manufacturing model, which really gives us that flexibility to manage.
Our our production.
Utilizations by being able to to notify our supply chain partners.
In the event, we need to with essentially a quarter's notice to bring the b.
The outside supply number down and focus on keeping internal utilization higher.
As a result of that we feel very confident that kind of through the down turn of a cycle. We can maintain that 70% gross margin floor, which.
From a from an Investor model standpoint has a unique metric that we put out there to give a floor.
In thinking about a downturn scenario and again I want to emphasize this is a this is a a projection to help investors model what it could be not in any way a forecast of what we think is is coming at us but from a revenue standpoint, we have this great diversification 70.
5000 products 125000 customers and thousands and thousands of applications, which are aligned to numerous secular growth market.
We have exposure to much stronger markets.
In a down cycle like aerospace and defense and health care, which are not going to be a cyclical.
On the gross margin side I mentioned this flexible manufacturing model that allows us to.
Really help help manage Utilizations and then we have a very very accordion, driven variable compensation program, which allows us to moderate opex.
So if we were to think about a down a downside scenario.
That that was.
In the.
15% down revenue market, we believe op margins, which still have a four handle on them probably be in the low <unk> and gross margins would probably be again above 70, but probably in the low seventies.
Got it that's very helpful for Sean Thank you. Thanks aberration.
Our next question will come from Stacy Raskin with Bernstein Research. Please go ahead.
Hi, guys. Thanks for taking my question I wanted to delve a little bit more into the bookings and the orders. So was it like bookings before were you know a 150%.
And now there were 130% like where is that book to bill.
She's coming in how far above wanted it and I guess what are you assuming happens to the backlog as we go into next quarter are you assuming that that backlog gets drawn down at all or are you assuming it goes up or just what are the assumptions around around around that embedded in the guidance. Yes. So let's see what I can what can we say.
For the last couple of quarters, excluding the third quarter.
Book to Bill was.
Well I actually you can do the math because you can see how the backlog has increased substantially with kind of in our in.
Parkway between a one and a two.
Right, where now are still above one but.
We're.
At the lower end of that now industrial and automotive strong.
And that helped to compensate for I think I'm going from memory here My consumer was just about flattish.
And and and Comms was just a hair below.
Got it what are you assuming into next quarter for them for the backlog.
Yes, sure because they are in the backlog is that indicative of what happens for next quarter because it goes out into 'twenty. Three so agencies cancellation. This is a very small percent of the backlog and that's really into 'twenty three so our sub his Bachelor probably increases again, because book to bill at the enterprise level, it's still above one.
It's really not going to affect the demand for the fourth quarter or probably even the first quarter at this point and it's for Sean said I used to.
I think investors booking just be way above one now they're nicely above one so we're still booking above what were shipping.
So what would cause us not to not to come in kind of in line with supply right. Why why would we why would have it for the last couple of quarters. Our revenue number has been purely a function of supply and why would why could that not be the case for the fourth quarter.
While that could not be the case is if customers say, we'd like to reschedule the timing and we choose in the spirit of customer satisfaction not to push it to them.
Although they've ordered it and give them that flexibility to move out.
And it could be as I mentioned from the channel standpoint, if the channel looks like inventory in the channel is building at a level that we don't think is healthy for the business and we choose to to keep that inventory on our books to give us more flexibility to make sure that we can match customer demand better.
One thing to that it's an important point for shock brought up on the channel is that 31 50 as soon as really no channel inventory build at the sell through number that we're guiding to yes. Thank you Mike for different parts of that answer it Stacy. So we'll go to the next question.
Our next question will come from Blayne Curtis with Barclays. Please go ahead.
Good morning, guys. Thanks, taking my question I, just want to follow up on a prior question in terms of just where youre seeing these cancellations you said consumer and comms are weaker I think you just said Tom spoke to Bill was below one, but I'm just trying to understand the comment of I.
I think channel sell through was weaker as well.
Can you dial this thing is it isolated to certain segments or is all of these comments kind of broad based in terms of where you're seeing the cancellations and the weak yourself through.
Everything is broad based and I think that if we if we.
We have over in overemphasized cancellations on this call that's probably a true statement right now as I I don't want to mislead folks to think that cancellations are a meaningful concern, but again in the spirit of transparency, we're saying that they were up modestly.
But everything we've talked about it's been pretty broad based.
Thank you.
Thanks Blaine.
And then on Tom's uncommon Blaine I, just maybe just one follow up is this has always been a lumpy business. We know that the wireless guys have spent a big chunk of money buying spectrum that spectrum has to be deployed which will require the <unk> hardware that we have the market share leading position on so.
We're highly confident this is purely a timing issue.
Thanks, Tom.
Yes.
Thanks Lance Good next question please.
Our next question will come from tore Svanberg with Stifel. Please go ahead.
Yes, Thank you and congrats on another record as we sort of move through this softer environment. How are you thinking about that should we.
Big cost levers.
Utilization Opex and Capex going forward. Thanks.
Oh, Okay. So I think we've talked through some of that Tori but.
From a from a at least certainly utilization levels, we're going to we're going to continue to see relatively good utilization levels across our across our internal factories for a few reasons. One is the benefit of the hybrid model is that we can bring more production in house second.
Is that die bank levels are at very low levels, and we do need to get those die bank levels back to a healthy healthy point Die Bank is an extremely cost efficient place for us to hold inventory, particularly when you have 75000 skus.
You can hold it sort of think of it as 10 cents on the dollar. So it is very economically efficient and allows us to improve customer satisfaction later on.
From an opex standpoint, as you've seen in the past, we have a very accordion, driven variable compensation program, which which automatically unwind.
If the financial performance of the company drives the two and I think what's unique to Adi versus perhaps some of our some of our peers is we have the.
The debt.
Cost synergies from Maxim, which are independent of the economic environment from a capex standpoint expect us to be where it is business as usual we had committed at the investor day to a higher level of Capex in 'twenty, two and 'twenty, three which is necessary to add the supply needed to hit our <unk>.
Long term model of 7% to 10% growth, which we are very much committed to.
And that is on track capital spend for the current quarter and sorry for the current year, maybe a bit below what we expected. That's a consequence of revenue coming in stronger so bigger denominator and also just a little bit of delay in receiving some of that equipment, but all of that will drive through in the in two.
2023.
Thank you.
Go ahead Vince.
Yes, sorry, sorry on the Opex side, we intend.
Two if we've been spending R&D at record levels, we intend to continue to.
Ensure that we have properly funded all our critical programs innovations are very very important part.
All of the value creation story.
We are also away from opening actually.
The spend in our go to market activities as well as of both of those we will continue to keep our pedal to the metal.
Great. Thank you.
Thanks Torry.
Our next question will come from <unk> Hari with Goldman Sachs. Please go ahead.
Yes.
Hi, good morning, and thank you.
Wanted to ask a question.
On the supply side of the equation.
Three months ago, you had talked about.
<unk> tightened us whether it be your internal supply or external foundry supply.
Just curious if youre starting to see signs of.
Supply easing.
I guess test was the big bottleneck for internal supply three six months ago and any changes there.
And in terms of foundry wafer supply again in fact with easing and kind of related to that.
And then some headlines about foundry wafer pricing increasing again in late 'twenty. Two 'twenty three is that sort of indication you're getting from their suppliers and if so are you comfortable that you'd be able to.
Pass those through to your customers. Thank you well I think the last part of your question first.
Pricing increases I believe that we are in the post Moore's law era in a period of sustained structural inflation in this business for many many years ahead.
You know I think it's true to say that supply we've been increasing of course, we've invested strongly in our own manufacturing capabilities to be able to.
Secure supply.
Increased supply actually across.
For wafer Fabs inside Adi So, yes supply is improving there.
<unk> as well as supply has been improving actually.
Through the pandemic right over the last couple of years.
Our subcontractors as well so I think there is a likelihood of supply across the board.
Yeah.
On pricing, maybe I'll just restate, what we said in the past we are not using this environment to take advantage of our customers and we are really looking to maintain our gross margin model and the rationale on that gross margin model, which is important to US is we know as as Vince mentioned, we spend at a at a healthy clip on our.
Randy to develop highly innovative products and we need to capture that innovation premium from our customers. So as our cost may increase it's important that we continue to capture those cost increases back with stable margins, because it's a reflection of the value, we're bringing to our customers.
Thanks, so much.
Our next question will come from Harlan sur with Jpmorgan. Please go ahead.
Hi, Good morning, Thanks for taking my question just wanted one clarification. So I just wanted to verify so you guys said that currently quarter to date. Your book to Bill is still greater than one. That's my clarification question. Then the main question is distribution represents about 60% of the team's revenues right and it looks like just the inventories are still below your target.
Levels of seven to eight weeks, obviously, the eventual catch up should provide you guys with some cushion left the environment continues to weaken further but that being said it still feels like auto and industrial demand is still quite strong. So given your outlook like what's your view on getting to target levels on channel inventories over the next few.
Yeah.
Yes. Thank you. Thanks, Alan your first of all let's say that you recaptured correctly and there is a there is.
Some opportunity for us to continue to.
To grow our revenue by bringing <unk> levels back to our healthy target level, but I want to emphasize that the guide as Mike mentioned the guide for the fourth quarter is on the basis of Pos equals.
One thing that Adi has been very consistent about for many years as we run our business on Pos So we need to look at and demand in end demand drives how we end up manufacturing and we want <unk> to be able to to help us with access for those products, but we are not looking for distribution to be.
A and excess buffer of inventory.
And the one other part of your question was book to Bill, Yes for the quarter book to Bill was not was still well above one is enterprise level that was driven by industrial and auto with the two strongest markets while columns, a consumer recall about flat around one.
And with that and we have our last question. Please.
Our last question will come from Ross Seymore with Deutsche Bank. Please go ahead.
Hi, guys. Thanks for letting me squeeze the last question, there's a lot of questions about our near term cancellations bookings backlog and all those sorts of things I wanted to ask a slightly longer one you mentioned in an answer to an earlier question about where the Postmortems law World, we're going to have an inflationary environment rather than deflationary can you just talk a little bit about how the customer.
<unk> have changed over the last few months, we've heard a lot from last year a lot from companies, saying, it's more of a partnership longer lead times et.
Et cetera long term supply agreements those sorts of things do you still see that behavior, continuing or do you believe that is a little bit more of a reflection of cyclical tightness and you expect some of that to unwind as well.
Yes, it's a very good question.
Not a lot of conversations we're also over the last couple of years with.
The Ceos of.
The biggest enterprises in the world of information.
What I can tell you for sure is that everybody wants to get closer to their key suppliers. When it comes to aligning product roadmaps for the long term.
Particularly companies that are perceived as being critical to the innovation process. So I can tell you that continues.
On the other side of the equation is everybody wants to understand at the customer side of things.
What do they need to do to secure supply for the long term what kind of arrangements that they need to put in place what kind of information flows what kind of models that we developed between each other so.
That continues.
I think you know it has been firmly established no that semiconductors are the bedrock of the modern.
Of modern socio economic life. So the conversations continue intensively I would say I expect that to continue.
Into the future.
Thank you Ross.
And with that thanks, everyone for joining our call. This morning.
I did want to flag that during these more uncertain times and consistent with our commitment to transparency for our owners will be even more available Vincent for shock will be in New York L. A the bay area, Chicago and across Europe in the next quarter as it was a busy quarter coming out for us.
Please reach out to myself or the IR team, if you'd like to be notified when we're in your neighborhood and with that thanks for joining us and your continued interest in Adi.
This concludes today's analog devices conference call you may now disconnect.