Q2 2025 Analog Devices Inc Earnings Call
Okay.
Operator: Good morning and welcome to the Analog Devices 2nd Quarter Fiscal Year 2025 Earnings Conference Call, which is being audio webcast via telephone and over the web.
Speaker Change: Good morning, and welcome to the analog devices second quarter fiscal year 2025 earnings conference call, which is being audio webcast via telephone and over the web I'd like to introduce rich Guccio Chief financial officer of analog devices.
Richard Puccio: I'd like to introduce Rich Puccio, Chief Financial Officer of Analog Devices. Thank you, Josh, and good morning, everyone. Before we start the formal part of our earnings call, I'd like to say a few words about Mike Lucarelli. As many of you may know, this will be Mike's last earnings call, as he will be leaving ADI at the end of May to pursue a new career opportunity. I want to thank Mike for his many contributions over his 10 years at Analog Devices. Mike has been instrumental in my transition into the company, and I will be forever grateful for his advice and guidance as I learned the ropes here.
Speaker Change: Thank you Josh and good morning, everyone before we start to form a part of our earnings call I'd like to say a few words about Mike Lucarelli as many of you May know this will be Mike's last earnings call as he will be leaving 80 I at the end of May to pursue a new career opportunity I want to thank Mike for his many contributions over his 10 years at analog devices, Mike has been instrumental.
Speaker Change: Two on my transition into the company and I will be forever grateful for his advice and guidance as I learned the ropes here.
Richard Puccio: I will miss Mike's insights, optimism, and relentless work on behalf of our stakeholders.
Speaker Change: I'll, Miss Mike's insights optimism and relentless work on behalf of our stakeholders.
Richard Puccio: Mike, I wish you the best in your new adventure.
Speaker Change: I wish you the best in your new adventure.
Michael Lucarelli: I'll now turn the call over to Michael Lucarelli, Vice President of Investor Relations. Thank you, Rich. Good morning, everyone. I will say I've thoroughly enjoyed my time working at Investor Relations, and that's because of all of you on this call. From investors to the sell side, to my colleagues at ADI, Vince, it's been a great 10 years. Rich, it was short and sweet, but it was good. And to my ADI crew, the Thunder Alley crew, thank you for everything for the past 10 years. It's been awesome. Jeff, who I hired over six years ago from the south side, has been a great asset to the IR team and ADI overall.
Speaker Change: I'll now turn the call over to Mike Peak Rally Vice President of Investor Relations.
Mike Peak: Thank you rich and good morning, everyone.
Speaker Change: Also I have thoroughly enjoyed my time working on Investor Relations. That's because of all of you on this call for investors to the sell side to my colleagues at Adi.
Speaker Change: It's been a great 10 years, rich with short and sweet, but it was good.
Speaker Change: And then my Adi crew Thunder Alley group. Thank you for everything for the past 10 years, it's been awesome.
Speaker Change: Jeff who I hired over six years ago from the sell side has been a great asset to the IR team at ATI overall.
Michael Lucarelli: He'll be replacing me as Head of Investor Relations. Now, Jeff, when I started, the stock was $50. It's now $225. 4X. That means you need to drive this stock to $1,000, and I trust you can do that.
Speaker Change: He will be replacing me as head of Investor Relations now, Jeff when I started to stop at $50. It's now 225.
Speaker Change: Forex I mean, you need to buy the stock $1000 I Trust you can do that so let me pass it to you Jeff to host today's call.
Jeff: So let me pass it to you, Jeff, to host today's call. Thank you, Mike. It's been a privilege working for you. You've taught me many things about semis, ADI, and life in general. So while I'm sad to see you go, I am excited for the opportunity and I'm looking forward to it.
Jeff: Thank you Mike it's been a privilege working for you you've taught me many things about Sammy's Adi and life in general.
Speaker Change: I'm sad to see you go I am excited for the opportunity I'm looking forward to it.
Jeff: Now, for anyone who missed our earnings press release, you can find it and relating financial schedules at investor.analog.com. 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, and our periodic reports and other materials filed with the SEC. Actual results could differ materially from the forward-looking information, as these statements reflect our expectations only as of the date of this call.
Speaker Change: Now for anyone who missed our earnings press release, you can find it and relating financial schedules at investor analog dotcom.
Speaker Change: 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, and our periodic reports and other materials filed with the SEC.
Speaker Change: Actual results could differ materially from the forward looking information as these statements reflect our expectations only as of the date of this call.
Jeff: We undertake no obligation to update these statements, except as required by law. References to Gross Margin, Operating Margin. Operating Expenses and Non-Operating Expenses, Tax Rate, EPS, and Free CAFO. And our comments today will be on a non-GAAP based. which exclude special items. When comparing our results to our historical performance, special items are also excluded from prior periods.
Speaker Change: We undertake no obligation to update these statements except as required by law.
Speaker Change: For instance, the gross margin operating margin.
Speaker Change: Operating expenses and non operating expenses tax rate EPS and free cash flow and our comments today will be on a non-GAAP basis, 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 a dip in addition.
Jeff: 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. References to EPS are on a fully diluted basis.
Speaker Change: All information about our non-GAAP measures are included in <unk>.
Speaker Change: Today's earnings release references to EPS are on a fully diluted basis.
Vincent Roche: Okay, and with that, I'll turn the call over to ADI's CEO and Chair, Vincent Roche. Thanks very much, Jeff, and very good morning to you all. Well, our second quarter results exceeded our expectations, both on the top and bottom line. Revenue growth was broad-based with double-digit year-over-year growth across all end markets.
Speaker Change: Okay, and with that I'll turn the call over to Adi's, CEO and chair Vincent Roche.
Speaker Change: Much Jackson very good morning to you all.
Speaker Change: Our second quarter results exceeded our expectations, both on the top and bottom lines.
Speaker Change: Revenue growth was broad based with double digits year over year growth across all end markets.
Vincent Roche: Against the volatile operating backdrop, our favorable performance and positive outlook underscores the growing demand for our exceptional product portfolio and the resilience and agility of our business you While we believe the evolving tariff situation is impacting customers' decision making, the cyclical and ADI-specific tailwinds I highlighted last quarter continue, and we're ever more confident that our revenues bottomed in 2024 and that we're returning to growth in fiscal 25. The secret to our success over these many decades has been sensing business transitions early and adapting quickly to continue focusing our capital where we can best increase our value to customers and improve our ability to capture that value.
Speaker Change: Against the volatile operating backdrop or a favorable performance and positive outlook underscores the growing demand for our exceptional product portfolio and.
Speaker Change: The resilience and agility of our business model.
Speaker Change: While we believe evolving tariff situation is impacting customers' decision making.
Speaker Change: Cyclical and Adi specific tailwind I highlighted last quarter continue.
Speaker Change: We're ever more confident that our revenues bottomed in 'twenty to 'twenty four.
Speaker Change: And that we're returning to growth in fiscal 'twenty five.
Speaker Change: The secret to our success over these many decades has been sensing business transitions early and adapting quickly to continue focusing our capital where we can best increase our value to customers and to prove our ability to capture that.
Vincent Roche: We invested substantial CAPEX over recent years to enhance and scale our hybrid manufacturing model, which helps our customers navigate increasingly dynamic geopolitical and macroeconomic environments. We expanded capacity at our existing fabs in the U.S. and Europe. and added commensurate capacity in our back-end facilities. Further, we deepen partnerships with trusted foundries around the world, including securing additional 300 millimeter fine pitch technology capacity at TSMC's Japan subsidiary. We've cross-qualified a significant portion of our broad product portfolio to be able to quickly swing production across geography. In short, our customers now enjoy greater supply optionality and resilience than ever before.
Speaker Change: We invested substantial capex over recent years to enhance and scale, our hybrid manufacturing model, which helps our customers navigate increasingly dynamic geopolitical and macroeconomic environments.
Speaker Change: We expanded capacity at our existing Fabs in the U S and Europe.
Speaker Change: And the other commensurate capacity in our back end facilities further we deepen partnerships with trusted foundries around the world, including securing additional 300 millimeter fine pitch technology capacity Tsmc's, Japan subsidiary.
Speaker Change: We've cross qualify it a significant portion of our broad product portfolio to be able to quickly swing production across geographies.
Speaker Change: In short our customers now enjoy greater supply optionality and resilience ever before.
Vincent Roche: On the OPEC side, we're investing at record levels to further strengthen and extend our world-class technology stack and continue enhancing our customers' experience and engagement with ADI. These investments allow us to take maximum advantage of the incredible opportunities for profitable growth that we see across our end markets. ADI plays a game that prizes leaps in innovation that transcend near-term macro concerns. We focus on five key megatrends that are persistently driving the future of business, the global economy and society, namely autonomy, proactive health care, the energy transition and sustainability. Immersive Experience, and AI-Driven Computing and Connectivity.
Speaker Change: On the Opex side, we're investing at record levels to further strengthen and extend our world class technology stack and continue enhancing our customers' experience and engagement with Adi.
Speaker Change: These investments allow us to take maximum advantage of the incredible opportunities for profitable growth that we see across our end markets.
Speaker Change: Adi plays a game that prices leaps and innovation that transcend near term macro concerns.
Speaker Change: We focus on five key megatrends that are persistently driving the future of business, the global economy and society, namely autonomy proactive health care, the energy transition and sustainability.
Speaker Change: Immersive experience and AI, driven computing and connectivity.
Vincent Roche: As the essential interface between the physical and digital domains, ADI is a critical enabler of these trends. We continue to define and pioneer the state of the art in high performance analog, mixed signal, and power management from sensor to cloud, microwave to bits, and nanowatts to kilowatts. Today, customers are turning to us for more complete solutions. The combination of our extensive franchise with the exquisite creativity and broad-based expertise of our technology gives us the ability to deliver elegant solutions to customer challenges that others struggle even to address. For example, as healthcare becomes more preventative and preemptive, our ability to accurately and reliably sense, measure, interpret, and connect clinical-grade vital signs.
Speaker Change: As the essential interface between the physical and digital domains Adi is a critical enabler of these trends.
Speaker Change: We continue to define a pioneer of the state of the art and high performance analog mixed signal and power management from sensor to cloud.
Speaker Change: Microwave to bits and none of what's to kilowatts.
Speaker Change: Today customers are turning to us for more complete solutions.
Speaker Change: The combination of our extensive franchise with the exquisite creativity and broad based expertise of our technologists.
Speaker Change: Gives us the ability to deliver elegant solutions to customer challenges that others struggle even to address for example.
Speaker Change: As health care becomes more preventative and preemptive our ability to accurately and reliably sense measure interpret and connect clinical grade vital science and.
Vincent Roche: In ultra low power settings is driving robust content and revenue growth at key customers in the smart wellness wearable space. Within clinical care settings, our cutting-edge imaging and patient monitoring solutions are enabling earlier identification and diagnosis of disease, which can enable more effective treatment and better patient outcomes.
Speaker Change: And ultra low power settings is driving robust content and revenue growth at key customers and the smart wellness wearable space.
Speaker Change: Within clinical care settings are cutting edge imaging and patient monitoring solutions are.
Speaker Change: Enabling earlier identification and diagnosis of disease, which can enable more effective treatments and better patient outcomes.
Vincent Roche: Turning to the autonomy trend, advances in automation within the industrial market, for example, are generating tremendous opportunity for ADI. The progression of robotics from fixed arm to autonomous and mobile to humanoid form factors requires ever greater quantities and integrations of sensing, edge computing, connectivity, and energy management. driving our content from hundreds of dollars in fixed robots today to potentially thousands in autonomous and humanoid robots. and automotives. Higher levels of autonomy are increasing demand for a sensing connectivity and functionally safe power solutions across all vehicle types, combustion engines, hybrids, and full EVs. Each new generation of automated system, be it industrial robots or car, dramatically expands our content and revenue opportunity.
Speaker Change: Turning to the autonomy trends advances in automation within the industrial market for example are generating tremendous opportunity for Adi.
Speaker Change: Progression of robotics from fixed arm to autonomous and mobility to humanoid form factors.
Speaker Change: Requires ever greater quantities and integrations of sensing edge computing connectivity and energy management driving our content from hundreds of dollars fixed robots today.
Speaker Change: To potentially thousands and autonomous humanoid robots.
Speaker Change: And automotive.
Speaker Change: Higher levels of autonomy are increasing demand for our sensing connectivity and functionally safe power solutions across all vehicle types combustion engines hybrids and full evs.
Speaker Change: Each new generation of automated system.
Speaker Change: Begets industrial robots or car <unk>.
Speaker Change: Dramatically expands our content and revenue opportunity.
Vincent Roche: And one final example from the AI-driven computing and connectivity trend. where the world's rapid adoption of AI continues to accelerate the growth of our ATE and data center business. Our leadership and success in ATE underscores the quality of our portfolio, as the winners in this market are determined first and foremost by performance. Our content per tester stretches into the hundreds of thousands of dollars. And looking ahead, we believe our leverage of additional mixed signal and digital capabilities to further reduce test time and power requirements will result in even more content per tester. And with AI investments showing no signs of slowing.
Speaker Change: And one final example from the AI, driven computing and connectivity trend.
Speaker Change: We're the world's rocket adoption of AI continues to accelerate the growth of our LTE and data center businesses, our leadership and success in a T E underscores the quality of our portfolio as the winners in this market are determined first and foremost by performance.
Speaker Change: Our content per tester stretches into the hundreds of thousands of dollars and looking ahead, we believe our leverage.
Speaker Change: Additional mixed signal and digital capabilities to further reduce test of a power requirements will result in even more content per tester.
Speaker Change: And with AI investments showing no signs of slowing.
Vincent Roche: Testing demand for GPUs, XPUs, and high bandwidth memory continues to increase, giving us confidence in a long runway for growth. Beyond test, our data center customers are turning to us to solve the vast and complex power and connectivity challenge. that come with high-performance, always-on AI computing. As a result, demand continues to grow for our innovative systems protection, optical control, and power delivery solutions.
Speaker Change: Testing demand for Gpus excuse in high bandwidth memory continues to increase giving us confidence in our long runway for growth.
Speaker Change: Beyond test our datacenter customers are turning to us to solve the vast and complex power and connectivity challenges that come with high performance always on AI computing.
Speaker Change: As a result.
Speaker Change: <unk> continues to grow for our innovative systems protection optical control and power delivery solutions.
Vincent Roche: These are just a few examples of how our solutions leverage persistent trends that transcend business cycles. drive an average selling price four times the industry average, and deliver differentiated results for both our customers and our shareholders.
Speaker Change: These are just a few examples of how our solutions leverage persistent trends that transcend business cycles drive an average selling price four times the industry average and.
Speaker Change: And deliver differentiated results for both our customers and our shareholders.
Vincent Roche: So in closing, we've successfully anticipated the transitions of the ICT industry and invested ahead of the curve for decades. Today, we're well positioned to deliver the AI-driven, intelligent edge solutions that will shape our future success.
Speaker Change: So in closing we've successfully anticipated the transitions of the ICT industry and invested ahead of the curve for decades.
Speaker Change: Today, we are well positioned to deliver the AI driven intelligent edge solutions that will shape, our future success.
Vincent Roche: You may have seen that we just celebrated our 60th anniversary, a milestone that fewer than 1% of public companies reach. But as thrilling as that accomplishment is, I'm even more excited about our future and the immense opportunity before us.
Speaker Change: You may have seen that we just celebrated our <unk> anniversary.
Speaker Change: Millstone that fewer than 1% of public companies reach.
Speaker Change: But as thrilling as that accomplishment as I'm, even more excited about our future and the immense opportunity before us.
Vincent Roche: Now, before I hand it over to Rich, I'd like to thank Michael Lucarelli, young Mike. for his distinguished and stellar contributions over the past several years to ADI's success, and I wish him well in his next adventure.
Speaker Change: Now before I hand, it over to rich.
Speaker Change: I'd like to thank Mike Lucarelli young bike.
Speaker Change: For his distinguished instead of our contributions over the past several years to Adi success, and I wish him well.
Speaker Change: His next adventure.
Richard Puccio: With us, over to you Rich. Thank you Vince.
Rich Guccio: With that over to rich.
Richard Puccio: Second quarter revenue of $2.64 billion came in above the high end of our outlook, up 9% sequentially and 22% year over year. Industrial represented 44% of our second quarter revenue, finishing up 8% sequentially and 17% year-over-year. Our industrial recovery broadened with all subsectors and regions increasing sequentially. On a year-over-year basis, we continue to see strong growth in aerospace and defense and ATE.
Speaker Change: Vince.
Vince: Second quarter revenue of $2 64 billion came in above the high end of our outlook up 9% sequentially and 22% year over year.
Vince: Industrial represented 44% of our second quarter revenue, finishing up 8% sequentially and 17% year over year, our industrial recovery broadened with all sub sectors and regions increasing sequentially.
Vince: On a year over year basis, we continue to see strong growth in aerospace and defense and a T E.
Richard Puccio: Automotive represented 32% of quarterly revenue, finishing up 16% sequentially and 24% year-over-year. This record result was fueled by continued strong demand of our leading connectivity and functionally safe power solutions, particularly in China. Additionally, we saw sequential growth in Europe and North America.
Vince: Automotive represented 32% of quarterly revenue, finishing up 16% sequentially and 24% year over year.
Vince: This record result was fueled by continued strong demand of our leading connectivity and functionally safe power solutions, particularly in China. Additionally, we saw sequential growth in Europe and North America.
Richard Puccio: Communications represented 12% of quarterly revenue, finishing up 5% sequentially and 32% year over year. Wireline and Datacenter, which makes up roughly two-thirds of our total communications business, drove our strong growth as AI buildouts continue to increase demand for our power and optical control products. And while wireless revenue declined on a year-over-year basis, it did grow sequentially.
Vince: Communications represented 12% of quarterly revenue, finishing up 5% sequentially and 32% year over year.
Vince: Wireline and data center, which makes up roughly two thirds of our total communications business.
Vince: Our strong growth as AI build outs continue to increase demand for our power and optical control products.
Vince: And while wireless revenue declined on a year over year basis, It did grow sequentially in.
Richard Puccio: And lastly, consumer represented 12% of quarterly revenue, finishing flat sequentially and up 30% year over year, our third consecutive quarter of robust growth. This reflects our greater share and stronger content position across a diversified list of applications.
Vince: And lastly, consumer represented 12% of quarterly revenue, finishing flat sequentially and up 30% year over year, our third consecutive quarter of robust growth.
Vince: This reflects a greater share in stronger content position across a diversified list of applications now.
Richard Puccio: Now on to the P&L. Second quarter gross margin was 69.4 percent up 60 basis points sequentially driven by higher utilization. Up next in the quarter was $744 million, up $57 million sequentially, driven entirely by variable compensation, resulting in an operating margin of 41.2%.
Vince: Now onto the P&L set.
Vince: Second quarter gross margin was 69, 4% up 60 basis points sequentially driven by higher utilization.
Vince: Opex in the quarter was $744 million up 57 million sequentially driven entirely by variable compensation.
Vince: <unk> and an operating margin of 41, 2%.
Richard Puccio: Non-operating expenses finished at $54 million and the tax rate for the quarter was $11 billion. All told, EPS was $1.85, up 32% year-over-year, and above the high end of our guided range.
Vince: Non operating expenses finished at $54 million and the tax rate for the quarter was 11%.
Vince: All told EPS was $1 85 up 32% year over year and above the high end of our guided range.
Richard Puccio: Now I'd like to highlight a few items from our Balance Sheet and our Cash Flow Statement. Cash and short-term investments finished the quarter at $2.4 billion and our net leverage ratio decreased to 1. Inventory increased 50 million sequentially as we continue to invest in DIVBANK to support our recovery.
Vince: Now I'd like to highlight a few items from our balance sheet and our cash flow statements cash and short term investments finished the quarter at $2 4 billion and our net leverage ratio decreased to one.
Vince: Inventory increased 50 million sequentially as we continue to invest in die bank to support a recovery days of inventory decreased to 169 and channel weeks tick lower.
Richard Puccio: Days of inventory decreased to 169 and channel weeks ticked lower. In the near term, we are maintaining our strategy of balancing leaner channel inventories with higher levels of inventory on our balance.
Vince: In the near term, we are maintaining our strategy of balancing leaner channel inventories with higher levels of inventory on our balance sheet.
Richard Puccio: Over the trailing 12 months, operating cash flow and CapEx were $3.9 billion and $0.6 billion, respectively. We continue to expect fiscal 2025 CapEx to decrease materially from 2024 and be within our long-term model of 4 to 6 percent of revenue. Precastle over the trailing 12 months with $3.3 billion or 34% of revenue. And during that same period, we have returned nearly $2.5 billion to shareholders through dividends and share repurchase. As a reminder, we target 100% free cash flow return over the long term using 40-60% for our dividend and the remainder for share count reduction.
Vince: Over the trailing 12 months operating cash flow and Capex were $3 9 billion and $6 billion, respectively. We continue to expect fiscal 2025 capex to decrease materially from 2024 and be within our long term model of 4% to 6% of revenue.
Vince: Free cash flow over the trailing 12 months was $3 3 billion or 34% of revenue.
Vince: And during that same period, we have returned nearly $2 5 billion to shareholders through dividends and share repurchases.
Vince: As a reminder, we target a 100% free cash flow returned over the long term using 40% to 60% for our dividend and the remainder for share count reduction.
Richard Puccio: Before moving on to guidance for our fiscal third quarter, let me provide additional color on recent demand trends given the current backdrop. Unsurprisingly, buying behavior was a bit choppier than normal as we saw some increased activity around the tariff announcement. This was short-lived and orders have returned to more normalized levels.
Vince: Before moving onto guidance for our fiscal third quarter, Let me provide additional color on recent demand trends given the current backdrop.
Vince: Unsurprisingly buying behavior was a bit choppy here than normal as we saw some increased activity around the tariff announcements. This was short lived and orders have returned to more normalized levels.
Richard Puccio: Overall, Q2 bookings grew sequentially across all end markets and all geographies, and a backlog entering Q3 is higher than a quarter ago. These signals support our view that our revenue bottomed in 2024, customer inventories are lean, and we are in a cyclical upturn.
Vince: Overall Q2 bookings grew sequentially across all end markets and all geographies and our backlog entering Q3 is higher than a quarter ago.
Vince: These signals support our view that our revenue bottomed in 2024 customer inventories are lean and we are in a cyclical upturn.
Richard Puccio: Now moving on to guidance. Third quarter revenue is expected to be $2.75 billion, plus or minus $100 million.
Vince: Now moving onto guidance.
Vince: Third quarter revenue is expected to be $2 75 billion, plus or minus $100 million on a sequential basis at the midpoint, we expect industrial and consumer to lead our growth communications to be up in automotive the decline after a very strong quarter.
Richard Puccio: On a sequential basis, at the midpoint, we expect industrial and consumer to lead our growth, communications to be up, and automotive to decline after a very strong quarter.
Richard Puccio: Operating margin is expected to be 41.5, plus or minus 100 basis points. This includes the impact of our annual salary increase.
Vince: Operating margin is expected to be 41, five plus or minus 100 basis points. This includes the impact of our annual salary increases.
Richard Puccio: Our tax rate is expected to be 11% to 13%, and based on these inputs, adjusted EPS is expected to be $1.92, plus or minus 10.
Vince: Our tax rate is expected to be 11% to 13% and based on these inputs. Adjusted EPS is expected to be $1 92, plus or minus 10.
Jeff: Now I'll pass it back to Jeff to begin our Q&A session. Thank you, Rich.
Vince: Now I'll pass it back to Jeff to begin our Q&A session. Thank.
Operator: Now let's get to our Q&A session. We ask that 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-cue, and we will take your question if time allows.
Jeff: Thank you rich now, let's get to our Q&A session.
Speaker Change: We ask that 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. So we will take your questions if time allows.
Operator: With that, can we have our first question, please? Thank you. For those participating, by telephone dial-in, if you have a question, please press star 1 1 on your phone to enter the queue. If your question has been answered and you wish to be removed from the queue, please press star 1 1 again. If you are listening on a speakerphone, please pick up the handset when asking your question.
Jeff: With that can we have our first question. Please.
Vince: Thank you for those participating by telephone dial in if you have a question. Please press star one one on your phone to enter the queue. If your question has been answered and you wish to be removed from the queue. Please press star. One again, if you are listening on a speaker phone. Please pick up the handset when asking your question, we'll pause for just a moment.
Operator: We'll pause for just a moment to compile the Q&A rock.
Vince: Compile the Q&A roster.
Joseph Moore: Our first question comes from Joseph Moore with Morgan Stanley. You may proceed. Great. Thank you. And congratulations to young Mike. Can you discuss automotive, you know, the 16% sequential growth really stands out relative to what peers are seeing. Just, you know, what's driving that and kind of any sense for, you know, if there's any tariff pull forward in that or just any mitigation that's happening there. Just how are you growing so much in autos? Thanks. Thanks, Joe.
Vince: Okay.
Joseph Moore: Our first question comes from Joseph Moore with Morgan Stanley You May proceed.
Joseph Moore: Great. Thank you.
Speaker Change: And congratulations to you Mike.
Speaker Change: Can you discuss automotive.
Speaker Change: 16% sequential growth really stands out relative to what peers are seeing.
Speaker Change: What's driving that and kind of any sense for if there is any tariff pull forward in that or just any any mitigation thats happening or just how are you growing so much in autos. Thanks.
Vincent Roche: I'll take that one. So Q2 was notably stronger than expected. Bookings were strong, turns were a lot higher than normal, and given some volatility saw within the quarter, we do think our auto results were aided by pull-in activity. While it's difficult to delineate what was pull-in versus normal, our estimate for pull-in upside is in the high single-digit range. However, buying behavior, as I mentioned, has normal buying and pull-ins to recur. And this is why we expect to decline in Q3, actually. Additionally, if you think about it, if you adjust for what we think the pull-in impact was, we're really guiding a seasonally flat Q3 for auto.
Speaker Change: Thanks sure I'll take that one so Q2 was notably stronger than expected bookings were strong turns were a lot higher than normal and given some volatility solid in the quarter. We do think our auto results were aided by pull in activity.
Speaker Change: While it's difficult to delineate what was Poland versus normal or estimate for pull in upside is in the high single digit range. However, buying behavior as I mentioned has not come along.
Speaker Change: Paul brings to recur and this is why we ask.
Speaker Change: Okay <expletive>.
Speaker Change: Klein in Q3 actually Additionally, if you think about it if you adjust for what we think the Poland impact was we're really guiding.
Speaker Change: Seasonally flat Q3 for auto on the pull ends right around that 25% auto tariff news, we saw an acceleration in auto sell through and orders most notably in the Americas and in Europe, which were collectively up about 20% sequentially much better than we had planned.
Vincent Roche: You know, on the pull-ins, right around the 25% auto tariff news, we saw an acceleration in auto sell-through and orders, most notably in the Americas and in Europe, which were collectively up about 20% sequentially, much better than we had planned. You know, and at the industry level, we saw stronger SAR numbers than expected in the quarter, potentially also explained by consumers getting ahead of the higher prices. So our hunch is that the upside in auto right around tariffs was not a coincidence.
Speaker Change: And at the industry level, we saw stronger SAR numbers unexpected in the quarter potentially also explained by consumers getting ahead of the higher prices. So our highest says that the upside in auto right around tax was not a coincidence as for China. The other major markets for auto noted last quarter. We expect a continued growth in <unk> and we had another record.
Vincent Roche: As for China, the other major market for auto, noted last quarter, we expect a continued growth, and we had another record, and that is what occurred in Q2. And there could have been some pull-in activity, but not nearly as noticeable as what we're seeing in North America and Europe.
Speaker Change: And that is what occurred in Q2.
Speaker Change: And there could have been some pull in activity, but not nearly as noticeable as what we're seeing in North America and Europe.
Speaker Change: Thank you got our next question please.
Speaker Change: Thank you.
Vivek Arya: Our next question comes from Vivek Arya with Bank of America Securities. Thanks for taking my question, and thanks and best wishes to Mike as well. So first is, you know, you mentioned that you are at a cyclical upturn, and I'm curious, how much do you think you are undershipping demand right now? You know, is it 10%? Is it 20%? And how many quarters until this kind of just undershipment impact normalizes? Right. So when do you think your sales will start to correspond more to end demand rather than just inventory replenishment? And I know you just spoke about autos, but I was hoping once you could give us some more color on the industrial side as well, and the level of undershipment and then the normalization timing for that.
Speaker Change: Our next question comes from Vivek Arya with Bank of America Securities You May proceed.
Vivek Arya: Thanks for taking my question and thanks, and best wishes to Mike as well.
Vivek Arya: The first is you mentioned that you are at a cyclical upturn and I am curious.
Vivek Arya: How much do you think you are under shipping demand right now is at 10% is it 20%.
Vivek Arya: And how many quarters until this kind of just under shipment impact normalizes.
Vivek Arya: So when when do you think your sales start to correspond more to end demand rather than just inventory replenishment and I know you just spoke about orders, but I was hoping you could give us some more color on the industrial.
Vivek Arya: Might as well and the level of under shipment and then the normalization timing for that thank you.
Vincent Roche: Thanks, Vivek.
Vivek Arya: Thanks Vivek.
Vincent Roche: I'll take the first part of the question. Yeah, so I think, look, we've seen, we're in a period now where we've got cyclical tailwinds, we've kept the channel very, very lean, we've been under shipping industrial significantly, actually, I think more so than any other market over the past two years. My sense is we're getting back to a more kind of a normalized convergence between demand and supply in that area. We're still keeping overall inventory, particularly in the channel, we're keeping it very, very lean, putting more and more, as Rich said earlier, putting more inventory on our balance sheet to be ready for the upside.
Speaker Change: I'll take the first part of the question.
Speaker Change: Yes, so I think look we've seen.
Vivek Arya: We're in a period now where we've got cyclical tail wins, we've kept the channel is very very lean we've been under shipping industrial significantly actually I think more some more so than any other market over the past two years. My sense is we're getting back to a more kind of a normalized.
Vivek Arya: Convergence between demand and supply in that area.
Vivek Arya: We're still keeping.
Vivek Arya: Overall.
Vivek Arya: <unk>, particularly in the channel, we're keeping it very very lean.
Vivek Arya: Putting more and more as rich said earlier, putting more inventory on our balance sheet to be ready for the upside.
Vincent Roche: And, you know, on the industrial side, so I think what we're saying is the franchise, the core franchise of the business, automation, broad base of customers recovering nicely. And we've also seen some, you know, excellent examples of green chutes in the aerospace and defense and the AI test area, which I alluded to in my script. And, you know, we've got a lot of new wins in healthcare and automation. So there's a good blend, I think, of uh kind of the um the legacy franchise and the new technologies uh pushing the company so we've got cyclical tailwinds and uh we've got idiosyncratic tailwinds as well given the the new products in the new applications.
Vivek Arya: On the industrial side.
Vivek Arya: I think what we're saying is the franchise the core franchise of the business automation.
Vivek Arya: Broad base of customers recovering nicely.
Vivek Arya: We've also seen some.
Vivek Arya: Excellent examples of green shoots in the aerospace and defense.
Vivek Arya: I test area, which I alluded to in my script.
Vivek Arya: And.
Vivek Arya: We've got a lot of new wins in health care and automation. So theres a good blend I think of.
Vivek Arya: It kind of the the.
Vivek Arya: The legacy franchise and the new technologies.
Vivek Arya: Pushing the company so we've got cyclical tailwind.
Vivek Arya: We've got idiosyncratic tailwind as well given the the.
Vivek Arya: The new products in the new applications.
Richard Puccio: Yeah, and Vivek, what I'd add is I would say from a consumption perspective, we're probably still shipping 10 plus percent below end consumption. But if you think about the outlook, you know, if you take our guide, you know, embedded in that guide is about 10 percent in growth in industrial. And at that midpoint, we will be shipping to end demand. And as we talked about, we'll continue to balance the channel inventory, but we will at the midpoint be expecting to ship into end demand in 3Q.
Vivek Arya: And Vivek, what I'd add is I would say from a consumption perspective, we're probably ship still shipping 10 plus percent below the low end consumption, but if you think about.
Vivek: The outlook if you take our guide embedded in that guide is about 10% or 10% and growth in industrial and then and at that midpoint, we will be shipping to end demand.
Vivek: And as we talked about we will continue to balance the channel inventory, but we will at the midpoint be expecting to shipping to end demand in <unk>.
Vivek: Thank you next question please.
Vivek: Thank you.
Harlan Sur: Our next question comes from Harlan Sur with J.P. Morgan, you may proceed. Hey, good morning. Thank you for taking my question.
Speaker Change: Our next question comes from Harlan sur with Jpmorgan you May proceed.
Speaker Change: Hello. Good morning. Thank you for taking my question and Mike. Thanks for all the great support over the years and best of luck in your <unk>.
Vincent Roche: And, Mike, thanks for all the great support over the years and best of luck in your future endeavors. Industrial automation, I think you guys touched on it a little bit, which is one of your larger sub-segments within industrial. I believe it's about 25% of industrial segments. This was one of the last large sub-segments to show recovery, given the tie-in to global manufacturing activity. Automation infected, I think, in October of last year. It grew in January. Did you guys see further sequential growth in industrial automation in April? And then, coincidentally, trade and tariff historically has driven weakness in automation as manufacturers pull back in the face of uncertainty.
Speaker Change: Your endeavors.
Speaker Change: Real automation I think you guys touched on it a little bit which is one of your larger sub segments within industrial I believe its about 25% of industrial segments.
Speaker Change: This was one of the last large sub segments to show recovery given the tie into global manufacturing activity automation and Chuck did I think in October of last year. It grew in January did you guys see further sequential growth in industrial automation in April and then coincidentally.
Speaker Change: And cash historically has driven weakness in automation as manufacturers pullback in the face of uncertainty are you seeing any changes in industrial automation order Chinese recently, especially out of China.
Vincent Roche: Are you seeing any changes in industrial automation order trends recently, especially out of China?
Vincent Roche: Thank you. So we have continued to see growth. And in fact, when we look at where we ended the quarter from an automation, excuse me, an automation perspective, we actually have got a book to bill in excess of one. We continue to expect that growth to continue into Q3. In fact, you know, if you look at our industrial business across all of the subsectors of industrial, you know, we have positive book to bills in all of those areas above one. So we feel so we feel like that has had has improved. Obviously, there's uncertainty across the board around the tariffs to them, you know, impossible to speculate what that will do.
Speaker Change: So we have continued to see growth in <unk> and in fact, when we look at where we ended the quarter from a.
Speaker Change: From an.
Speaker Change: On automation excuse me on automation perspective, we actually have got a book to bill in excess of one we continue.
Speaker Change: Do you expect that growth to continue into Q3 in fact.
Speaker Change: If you look at our industrial business across all of the <unk>.
Speaker Change: Subsectors of industrial.
Speaker Change: A positive book to bills in all of those areas above one.
Speaker Change: So we feel like that is it has improved.
Speaker Change: There is uncertainty across the board around the tariffs to them.
Vincent Roche: But we do see we have seen growth in bookings and in the revenue. I think it's true as well that, you know, right across the whole spectrum of applications, automation. We've seen very, very strong book to build geographically as well. So I think we're in a solid patch right now. Tariffs are definitely You know, weighing heavily the uncertainty is, I think, causing circumspection. Many of our customers are holding back on build-outs, but I don't think there's any question about the importance of automation. From many, many dimensions, we've got the... kind of the normal build outs of automation, you know, more and more precision, more connected, flexible factories.
Speaker Change: Impossible to speculate what that will do but yes, we do see we have seen.
Speaker Change: And bookings and in the revenue.
Speaker Change: So I think it is true as well.
Speaker Change: <unk>.
Speaker Change: I think we're in a solid patch right now tariffs are definitely.
Speaker Change: From many many dimensions, we've got the <unk>.
Speaker Change: The normal build outs of automation.
Speaker Change: And more and more precision.
Vincent Roche: But also my sense is we'll see a CAPEX cycle as localization takes root as well over the coming, the coming several years. Yeah, the localization point is, yeah, that's a good example.
Speaker Change: More connected flexible factories, but also my sense is we'll see a capex cycle as localization takes root as well over the coming.
Speaker Change: Then coming several years.
Speaker Change: Yeah. Thank you elevation partners yes.
Speaker Change: A good example, thank you.
Speaker Change: The next question please.
Operator: Thank you.
Tore Svanberg: Our next question comes from Tore Svanberg with Steeple, you may proceed. Yes, thank you. Congrats on the results. And Mike, thank you so much. Wishing you best of luck. Vince, you mentioned this a little bit in your script, but robotics, I know this is a market that you have a lot of exposure to. And I think there was a slowdown in that market, especially around the pandemic-ish. But now with AI, it seems that we're sort of at an inflection point. So I was just hoping you could talk a little bit more about that opportunity and some of the design activity that you're seeing on the robotics side.
Speaker Change: Thank you.
Operator: Our next question comes from tore Svanberg with Stifel. You May proceed.
Speaker Change: Yes. Thank you congrats on the results and Mike. Thank you. So much wishing you best of luck.
Speaker Change: Vince you mentioned this a little bit in your script that robotics.
Speaker Change: It's a market that you have a lot of exposure to and I think there was a slowdown in that market, especially around the pandemic, yes, but now with AI. It seems that we're sort of at an inflection point. So I was just hoping you could talk a little bit more about that opportunity and some of the design activity that youre seeing on the on the robotic side. Thank you.
Vincent Roche: Thanks. Yeah, thanks, Tory, for the question. Yeah, I think, you know, one of the pervasive trends we're seeing is demographic shift. I think automation of productivity is going to be, you know, endemic across the globe. You know, and that predates the concern about the need to localize and so on and so forth. So I think the trend is very, very solid.
Speaker Change: Yes. Thanks for the question, Yes, I think.
Speaker Change: One of the pervasive trends, we're seeing as demographic shifts.
Speaker Change: Thank you.
Speaker Change: Automation.
Speaker Change: Productivity is going to be.
Speaker Change: Demick across the globe.
Speaker Change: And that predates the concern about looking at the need to localize install and support so I think the trend is very very solid.
Vincent Roche: What we're going to see is A new epoch, I think, in robotics. that we'll move into more tactile, more precise robotic systems. that will use a lot of intelligence at the edge. You know, we are you may have seen some of the press and some of the areas where we're collaborating with robotic suppliers, complementary semiconductor partners as well, to enable this new era of highly tactile precision robotics to take place. Everybody's focused on the humanoid, but I think there are many steps to take place between the kind of the big heavy arm robotics and the more mobile, tactile robotic systems. So, You know, our content typically in a large arm system would be hundreds of dollars, but as we see more available opportunity to bring intelligence to the edge, we see more modalities of sensing take roots in these more sophisticated robotic systems. I think the content that we could see there will be an order of magnitude more, maybe a...
Speaker Change: What we're going to see us.
Speaker Change: A new epoch, I think in robotics.
Speaker Change: That will move into more more tactile more precise robotic systems that will use a lot of intelligence at the edge.
Speaker Change: And.
Speaker Change: We are you may have seen some of the press and some of the areas square, we're collaborating with robotics suppliers complementary.
Speaker Change: Semiconductor partners as well to enable this new era of highly tactile precision robotics to take place everybody is focused on the humanoid, but I think there are many steps to take place.
Speaker Change: Between the kind of the big heavy arm robotics.
Speaker Change: More mobile.
Speaker Change: Tactile robotic systems so.
Speaker Change: We know our content typically in a large arm system would be hundreds of dollars, but as we see more available opportunity to bring intelligence to the edge, we see more <unk> more and more <unk> sensing.
Speaker Change: Take routes and these more sophisticated robotic systems I think.
Speaker Change: The contents that we could see there will be.
Speaker Change: In order of magnitude more maybe.
Vincent Roche: you know, maybe more over the coming 5-10 years. So my sense is this is a long-term, persistent trend. And I think we're very, very well positioned at that edge. Of course, AI will enable more and more intelligence at the edge. And that's something that we're preparing our solutions to be able to incorporate.
Speaker Change: Maybe more over the coming five to 10 years. So my sense is this is a long term persistent trend.
Speaker Change: And I think we're very very well positioned there at that edge of course.
Speaker Change: Hi.
Speaker Change: <unk> will enable more and more intelligence at the edge and that's something that we're preparing our solutions to be able to incorporate.
Speaker Change: Thank you.
Speaker Change: Next question please.
Chris Danely: Thank you. Our next question comes from Chris Danely with Citi. You may proceed. Hey, thanks. First of all, Mike, thanks a lot for all your help and honesty over the years. Dave Paul, now Mike Lucarelli leaving. super depressing, anyway, but congratulations. So just a question on leverage, guys. So if we look at the April quarter. July Quarter Guide. Your OPEX is basically growing about as much as sales. And then the guide for the July...
Speaker Change: <unk>.
Speaker Change: Our next question comes from Chris Danley with Citi. You May proceed.
Chris Danley: Hey, Thanks, guys.
Speaker Change: First of all Mike.
Speaker Change: Thanks, a lot for all your health and honesty over the years first Dave Paul now Mike Lucarelli, leaving this is <unk>.
Speaker Change: Super depressing.
Speaker Change: Yes.
Speaker Change: Beth congratulations in all honesty.
Speaker Change: So.
Speaker Change: Just a question on leverage guys. So look at the April quarter results and the July quarter Guide you're on your Opex is basically growing about as much as sales.
Speaker Change: And then the guide for the July quarter, even though you don't guide gross margin implies.
Speaker Change: Minimal gross margin growth. So can you just talk about why that's happening and should we expect.
Richard Puccio: talk about why that's happening and should we expect, you know, some sort of acceleration and leverage going forward or should OPEX continue to grow about the same amount of sales and the same way? All right, Chris, I'll take that one.
Speaker Change: Some sort of acceleration and leverage going forward or should opex continued to grow about the same amount of sales has been the same language gross margin. Thanks.
Richard Puccio: So I'll do the near term first, and then I'll talk a little bit about 25 and what I think you might be able to expect in 26. So Q2's operating margin was up sequentially, despite the big acceleration in variable comp. In fact, our base opex was actually flat sequentially. So that's what you saw in Q2. In Q3, we do expect to see some continued operating leverage, which will get offset by the impact of our annual salary increases, as well as our continued growth in the variable. Although we will expect the increase in variables certainly sequentially to be lesser degree than we've seen in Q2.
Speaker Change: Chris I'll take that one so.
Speaker Change: I'll do the near term first and then I'll talk a little bit about 25, and what I think you might be.
Speaker Change: We are expecting 26 so.
Speaker Change: Q2 operating margin was up sequentially sequentially. Despite the.
Speaker Change: The big acceleration in variable comp.
Speaker Change: In fact, our base.
Speaker Change: Our base Opex was actually flat sequentially. So what you saw that's what you saw in Q2.
Speaker Change: Q3, we do expect to see some continued operating leverage.
Speaker Change: Which will get offset by that.
Speaker Change: The impact of our annual salary increases as well as our continued growth in the variable.
Speaker Change: Although we will expect the increase in variable certainly sequentially to be lesser degree than we've seen in Q2. If you think about it just as a reminder for everybody.
Richard Puccio: You know, if you think about it, just as a reminder for everybody, the mechanics of our variable comp plan, which is tied to year over year growth and operating margin, you know, given the absence of revenue growth in 24, it was a pretty low year for us. And considering our return to growth here in 25, variable comp is gonna grow and will continue to grow meaningfully. So while we are optimistic, we will continue to achieve operating margin percent growth. The increase in the variable in 25 is meeting that. However, you know, when we look to 26, we'll be going off of a smaller base.
Speaker Change: The mechanics of our variable comp plan, which is tied to year over year growth in operating margin.
Speaker Change: The absence of revenue growth and 24, it was a pretty low year for us and considering our return to growth here in 'twenty five variable comp is going to grow and will continue to grow meaningfully. So while we are optimistic we will continue to achieve operating margin percent growth.
Speaker Change: The increase in the variable and 25 is meeting that however, when we look to 'twenty six will be going off of a smaller base and so we do expect we'll get more leverage if.
Richard Puccio: And so we do expect we'll get more leverage if we continue the cyclical upturn. And then, you know, on the gross margin side, you know, at the 275 guide, we expect to be around 70%, you know, which we've talked about, you know, that is, that baked into that assumption is that we will see the growth in industrial we're anticipating, which, as you guys know, is our most profitable. And that has been one of our challenges, we've talked about it in getting additional leverage, you know, and if you look at just the most recent, you know, the outperforming auto puts pressure on gross margin.
Speaker Change: If we continue the cyclical upturn.
Speaker Change: And then.
Speaker Change: On the gross margin side at the $2 70 to 75 guide, we expect to be around 70%.
Speaker Change: Which we've talked about.
Speaker Change: That is.
Speaker Change: But baked into that assumption is that we will see the growth in industrial we're anticipating which as you guys know is our most profitable.
Speaker Change: And that has been one of our challenges we've talked about it in getting additional leverage.
Speaker Change: It's just the most recent.
Speaker Change: Outperforming auto puts pressure on gross margin, but as we see the industrial leading the charge coming out with.
Richard Puccio: But as we see the industrial leading the charge coming out with the, you know, 10% expected growth in industrial Q3, we do expect we will get back to around that 70% margin.
Speaker Change: 10% expected growth in industrial in Q3, we do expect we will get back to around that 70% margin, yes, I think it's worth noting as well Chris.
Vincent Roche: Yeah, I think it's worth noting as well, Chris, that, you know, where we are adding opex to the company, aside from the kind of the inflationary things that we have to deal with, it's in the engineering side, you know, we see tremendous opportunity across more and more space. for analog technology, power technology. but also digital and software. So we're judiciously adding talent where we need it. And that's a contributor to the to the OPEX, of course. But, you know, obviously, long term, we expect to get the returns and get the growth from these investments.
Speaker Change: Where are we are adding opex to the company aside from the kind of the inflationary things that we have to deal with.
Speaker Change: It's in the engineering sites, we see tremendous opportunity across more and more spaces.
Speaker Change: For analog technology power technology.
Speaker Change: But also digital and software so.
Speaker Change: Ah, we're judiciously, adding talent, where we needed.
Speaker Change: That's a contributor to the ER to.
Speaker Change: To the Opex of course, but.
Speaker Change: Obviously long term, we expect to get the returns and get the growth from these investments.
Speaker Change: Got it thank you.
Speaker Change: Next question please.
Speaker Change: Thank you.
Stacy Rasgon: Our next question comes from Stacy Rasgon with Bernstein Research, you may proceed. Hi, guys. I have two... Quick questions just on the demand environment. Just first, given the auto dynamics, you talked about, you know, SAR and everything. What are your expectations for SAR and auto builds, like, into the second half of the year amid all the tariff uncertainty? Because I think autos are getting hit more by that. And then secondly, just, I guess, philosophically, you know, you are seeing pull forward in auto. You don't seem to be seeing it in industrial. How would you know?
Speaker Change: Our next question comes from Stacy <unk> with Bernstein Research you May proceed.
Stacy: Hi, guys.
Speaker Change: I have two.
Speaker Change: Quick questions just on the demand environment.
Speaker Change: Just first given the auto dynamics you talked about.
Speaker Change: Sorry, I mean, what are your expectations for SAR and auto builds like into the second half of the year amid all the tariff uncertainty because I think autos are getting hit more by that.
Speaker Change: And then secondly, just just I guess philosophically.
Speaker Change: You are seeing pull forward in auto you don't seem to be seeing it in industrial how would you know if.
Vincent Roche: if the strength of seeing industrial is actually true cyclical recovery versus versus pull forward in the wake of tariffs.
Speaker Change: If the strength Youre seeing industrial is actually true cyclical recovery versus versus pull forward in the wake of tariffs or uncertainty.
Richard Puccio: Hey, thanks, Stacy. I'll do the last one. You know, one of the things we looked at as we were trying to assess what we thought might be pull-ins, you know, as we track our ordering patterns and what our expectations around the ordering patterns were. So, you know, what we saw was at the start of Q2, bookings sort of were progressing higher as we expected them to. Then toward the end of March, around the time we heard about the auto tariffs, you know, we saw an acceleration in automotive, and that lasted for a couple of weeks, as I mentioned, and since has normalized.
Speaker Change: Hey, Thanks, Casey I'll do the last one.
Speaker Change: One of the things we looked at it is we're trying to assess what we thought might be pull ins as we track we track our order ordering patterns and what our expectations around the ordering pattern patterns were so.
Speaker Change: What we saw was at the start of Q2 bookings were progressing higher as we expected them to then toward the end of March around the time we.
Speaker Change: Heard about the auto tariffs, we saw an acceleration in automotive and that lasted for a couple of weeks as I mentioned and since has normalized but when you look across the other end markets. We didn't notice anything unusual from a booking trends they.
Vincent Roche: But when we look across the other end markets, we didn't notice anything unusual from a booking trend. They were as expected, and we end the quarter with, you know, like I said, we ended the quarter with book-to-bills above parity. And, you know, from a geographic perspective, actually bookings were up in all regions. So, like I said, we didn't see anything anomalous in the booking patterns outside of what we saw in automotive. Yeah, I'd say generally speaking, you know, from the conversations we have with our industrial customers. It's kind of steady as she goes to some extent, there's no particular ire or anxiety around, around supply.
Speaker Change: They were as expected and we ended the quarter with like I said, we ended the quarter with book to Bill is above parity from a geographic perspective actually bookings were up in all regions. So.
Speaker Change: Like I said, we didn't see anything anomalous in the.
Speaker Change: In the.
Speaker Change: Booking patterns outside of what we saw in automotive yes.
Speaker Change: I'd say generally speaking from the conversations we have with our industrial customers.
Speaker Change: Steady as she goes to some extent there is no particular.
Speaker Change: Our our <unk> around around supply. So I think it's a pretty normal pattern and as I said earlier, we're seeing a convergence between.
Richard Puccio: So I think it's a pretty normal pattern. And as I said earlier, we're seeing a convergence between, you know, ship in and sell through. Yeah, and Stacy, sorry, I skipped your first part of your question on SAR, you know, our expectation is, you know, that we'll see SAR down in the back half. And as we've talked about before, you know, we still get benefit from the, you know, continuing increasing content to offset some of that SAR pressure, but we are expecting the second half SAR to be lower.
Speaker Change: Shipping and sell through.
Speaker Change: Yes, Stacy sorry, I skipped your first part of your question on Saar and our expectation is that we'll see SAR down in the back half.
Speaker Change: And as we've talked about before we still get benefit from the continued increase in content to offset some of that sorry.
Speaker Change: Saar pressure, but we are expecting the second half.
Speaker Change: Sorry to be lower.
Stacy Rasgon: That's helpful.
Operator: Thank you, guys.
Speaker Change: Got it that's helpful. Thank you guys. Thanks.
Speaker Change: Thanks, Danielle next question. Please thank you.
Chris Castle: Our next question comes from Chris Castle with Wolf Research, he may... Yes, thank you. And, Mike, all the best. Just a question regarding, you know, how all of this might affect the second half. And obviously, you know, too early to provide guidance here. But, you know, with respect to auto, with some of what you've seen now, you know, as we go into the July quarter, do you think this has normalized such that, you know, whatever happens going into the second half is really a reflection of true demand? And I guess, you know, the same question for the industrial side as well.
Chris Caso: Our next question comes from Chris Caso with Wolfe Research you May proceed.
Chris Caso: Yes, Thank you and Mike all the best.
Chris Caso: Just a question regarding.
Speaker Change: How all of this might affect the second half and obviously.
Speaker Change: Too early to provide guidance here, but with respect to auto with some of the what you've seen now.
Speaker Change: As we go into the July quarter do you think this has normalized such that.
Speaker Change: Whatever happens going into the second half is really a reflection of true demand and I guess.
Speaker Change: One question for the industrial side as well.
Richard Puccio: You know, how should we be thinking about, you know, the puts and takes as we go into the second?
Speaker Change: How should we be thinking about the puts and takes as we go into the second half sure.
Richard Puccio: Sure, I'll talk a little bit about Q3. So, you know, as I said, we do think we benefited from some pull-ins in Q2, but given what we've seen in the order rate since and continuing into Q3, we're not really expecting any incremental impact from pull-ins in Q3. So, you know, our outlook reflects the acceleration in our recovery, most notably again in the industrial market where we're expecting a very strong quarter. We've got strong bookings momentum across all applications and geographies. You know, as we, you know, as we think about the back half of the year, if you remember last quarter, we talked about, you know, hitting seven to 10% for the full year growth.
Speaker Change: Sure.
Speaker Change: I'll talk about I'll talk about a little bit about Q3 so.
Speaker Change: As he said, we do think we benefited from some pull ins in Q2.
Speaker Change: But given what we've seen in the in the order rates since and continuing into Q3, we're not really expecting any incremental impact from pull ins in Q3. So our outlook reflects the acceleration in our recovery, most notably again in the autumn.
Speaker Change: The industrial market, where.
Speaker Change: We're expecting a very strong quarter we've.
Speaker Change: We've got strong bookings momentum across all applications and geographies.
Speaker Change: As we.
Speaker Change: As we think about the back half of the year. If you remember last quarter, we talked about hitting 7% to 10% for the for the full year growth.
Richard Puccio: You know, with what we saw in Q2 and what we've seen in booking trends in our Q3 outlook, I'm actually more confident than I was a quarter ago that we'll end at the higher end of that range, but we will continue to be cautious and mindful given all the tariff uncertainty.
Speaker Change: With what we saw in Q2, and what we've seen in bookings trends and our Q3 outlook I'm actually more confident than I was a quarter ago that will end at the higher end of that range, but we will continue to be cautious and mindful given all the tariff uncertainty.
Speaker Change: Thank you.
Joshua Buchalter: Thank you. Our next question comes from Joshua Buchalter with TD Cal, and you may proceed. Hey guys, thanks for taking my questions.
Speaker Change: But our next question. Thank you.
Speaker Change: Our next question comes from Joshua Buchalter Holter with TD Cowen you May proceed.
Speaker Change: Hey, guys. Thanks for taking my question.
Richard Puccio: Mike, congrats on the new gig, and Jeff, congrats to you as well, and good luck with the $1,000 stock price. So, I'm sorry to keep pulling this thread, but I did want to ask about industrial again. You were very clear in your commentary about your on books and channel inventory, but do you get the sense that there's any element of your end customer restocking that's going on, or do you think this is really just an industrial recovery? Because again, the sequentials are better than most of your peers reported, even though they did go a month ago.
Speaker Change: Mike Congrats on the new gig and Jeff Congrats to you as well and good luck with the $1000 stock price.
Speaker Change: Yes.
Speaker Change: Sorry to Paul and keep all of US right, but I did want to ask about industrial again.
Speaker Change: You were very clear in your commentary about your Amdocs and channel inventory, but do you get the sense that there's any element of your end customer restocking that's going on or do you or do you think this is.
Speaker Change: Really just an industrial recovery because again it does just the.
Speaker Change: <unk> are better than most of your peers reported even though they did go up months ago. Thank you.
Richard Puccio: Thank you. Yeah, okay.
Richard Puccio: Go ahead, Richard. Thanks. So I actually don't, I don't think we've seen, seen sign of, I wouldn't call it restocking. I do think that because they are coming off of inventory lows across most of our customer base. And, and we, we know that because when we look at net new orders, we're seeing net new orders come in from the industrial customers. So I do think that they've had lean inventory and, and our, and we've seen their, their purchasing accelerate. But for you know, as we've talked about, you know, we've been under shipping industrial pretty significantly for the last two years.
Speaker Change: Yes.
Rich Guccio: Go ahead rich.
Rich Guccio: I actually don't I don't think we've seen it seen signs of I wouldn't call. It restocking I do think that because they are coming off of inventory lows across most of our customer base.
Speaker Change: We know that because when we look at net new orders were seeing net new orders come in from the industrial customers. So I do think that they've had lean inventory and on our.
Speaker Change: And we've seen that they're purchasing accelerate.
Speaker Change: But as we've talked about we've been under shipping industrial pretty significantly.
Richard Puccio: And if we head into Q3, we do not expect undership industrial in Q3. We use POS signals as well to, you know, to gauge to get as close to true demand as we possibly can. So You know, as we said earlier, industrial is the area where we've been under shipping most. And I think what we're getting back to now is a more normalized pattern of shipping and selling. Thank you both. Thanks, Josh.
Speaker Change: For the last two years and if we head into Q3, we do not expect to under ship industrial in Q3.
Speaker Change: Yeah, we use Pos signals as well too.
Speaker Change: <unk> to get as close to true demand as we possibly can so.
Speaker Change: As we said earlier industrial is the area, where we've been under shipping most and I think what we're getting back to now is more normalized.
Speaker Change: Pattern of shipping and selling through.
Speaker Change: Okay. Thank you both get the color.
Speaker Change: Thanks, Josh Thanks, Josh.
Operator: We'll go to our next question, please.
Speaker Change: Well go to our next question please.
Operator: Thank you.
Vincent Roche: Our next question comes from Blaine Curtis with Jefferies, you may proceed. Hey, good morning, guys. And I'll offer the congrats to young Mike as well. I actually kind of wanted to ask about the plans, outsource versus insource. So obviously, you know, pre pandemic, you were leaning more towards external. And then, you know, when you ran out of supply, it was let's do more internal. I you know, I heard you talking about qualifying, you know, external fabs. I'm just kind of how are you thinking about this now? Obviously, tariffs are moving target. But it does seem like more diversity and boundary geographic location is preferable.
Speaker Change: Our next question comes from Blayne Curtis with Jefferies. You May proceed.
Blayne Curtis: Hey, good morning, guys.
Speaker Change: Congrats to Mike.
Speaker Change: Mike as well.
Speaker Change: Actually I kind of wanted to ask about the planned outsource versus in source. Obviously pre pandemic you are leaning more towards external and then when you ran out of supply was let's do more internal.
Speaker Change: Heard you talking about qualifying external fabs I'm, just kind of how are you thinking about this now obviously tariffs are a moving target.
Speaker Change: But it does seem like more diversity in foundry geographic location is preferable how are you thinking about it now.
Vincent Roche: How are you thinking it about it now? Yeah, well, look, I think first and foremost, we're in a good place in terms of the overall capacity footprint that we have. It's more than 2x what it was before the pandemic. So we've been investing primarily in CapEx, building out front end and back end, really to support our growth and give us more resiliency, more flexibility. And I think what we've got now is, particularly on the internal piece, I want to make this point as well. When it came to nodes at 180 nanometers and above, which would be the majority, most of ADI's revenue would ship on semiconductor process nodes that are 180 nanometers and above.
Speaker Change: Look I think first and foremost we are in a good place in terms of the overall capacity footprint that we have it's more than two X what it was before the.
Speaker Change: The pandemic, so we've been investing primarily in.
Speaker Change: Capex building front end and back end really to support our growth and give us more resiliency more flexibility.
Speaker Change: And.
Speaker Change: I think what we've got now is.
Speaker Change: Yes.
Speaker Change: Victory on the internal piece, a little make this point as well.
Speaker Change: When it came to nodes at 190 nanometers, and above which would be the majority most of areas revenue which ship.
Speaker Change: Semiconductor process nodes that are 100 emerging nanometers and above.
Vincent Roche: Essentially, there was no external investment in those nodes for many, many years. So we decided You know, that was an area that we're still developing a lot of new products on. It's a very, very important part of many of our businesses, particularly industrial and automotive. So we decided to place the investments internally to make sure that we have sufficient growth upside and ability to capture the value that we're creating. So, my sense is now we're, you know, as I said, we've got more than 2x the internal capacity and we've got this flexible swing between external and internal.
Speaker Change: Essentially there was no external investment in those nodes for many many years, so we decided.
Speaker Change: That was an area that we're still developing a lot of new products on it.
Speaker Change: Very very important part of the of many of our businesses, particularly industrial and.
Speaker Change: And automotive so we decided to place the investments internally to make sure that we have sufficient.
Speaker Change: Growth upsides.
Speaker Change: The ability to capture the value that we're creating.
Speaker Change: So my sense is now where it is.
Speaker Change: As I said, we've got more than two X the internal capacity.
Speaker Change: We've got this flexible swing between external and internal.
Vincent Roche: You know, from nodes from five nanometers, by the way, we're designing new products in five nanometers. So this business is characterized by massive diversity of semiconductor recipes. But, you know, the ones that we can do internally to support the broad base of our business where now we've secured our position there and that we continue to partner. with our key. collaborators on the finer geometry nodes at kind of 90 nanometers and below.
Speaker Change: From nodes from five nanometers by the way we are designing new products on five nanometers. So this business is characterized by massive diversity of semiconductor recipes.
Speaker Change: But.
Speaker Change: The ones that.
Speaker Change: We can do.
Speaker Change: Internally to support the broad base of our business, where now we have secured our position there.
Speaker Change: That will continue to partner.
Speaker Change: With our key.
Speaker Change: Collaborators on the finer geometries nodes kind of 19 nanometers and below.
Speaker Change: Alright that was our final question. Thanks, everyone for joining us this morning, and with that a copy of the transcript will be available on our website and all available reconciliations and additional information can be can also be found at the quarterly results section of our Investor Relations site at Investor analog Dot com. Thanks, again for joining us and your continued interest in.
Operator: Thanks, everyone, for joining us this morning.
Operator: And with that, a copy of the transcript will be available on our website, and all available reconciliations and additional information can also be found at the quarterly results section of our investor relations site at investor.analog.com. Thanks again for joining us and your continued interest in Analog Devices.
Speaker Change: Analog devices.
Operator: This concludes today's Analog Devices conference call.
Speaker Change: This concludes today's analog devices conference call you may now disconnect.
Operator: You may now disconnect.
Speaker Change: Yes.
Speaker Change: Okay.
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Speaker Change: Good.
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