Analog Devices, Inc. Q3 FY2025 earnings call

• Vincent Roche noted that third quarter revenue and earnings exceeded expectations, with double-digit year-over-year growth across all end markets despite geopolitical and macro uncertainty.
• The industrial business, including sectors like aerospace, defense, healthcare, etc., is recovering, with industrial automation expected to see long-term expansion due to economic and demographic pressures and the potential of real-time intelligent edge data.
• ADI is investing in robotics, with content in humanoid robots likely to be several thousand dollars, a 10x increase over current AMRs, and collaborating with NVIDIA on digital twin simulation programs for robotic systems.
• Partnerships with Teradyne Robotics, advancements in agricultural robotics, and growth in healthcare robot-assisted surgery systems were highlighted as examples of the company's strategy in action.

Revenue for the third quarter was $2.88 billion. Industrial represented 45% of revenue, with absolute revenue up 12% sequentially and 23% year over year. Automotive was 30% of quarterly revenue, down 1% sequentially but up 22% year over year. Communications made up 13% of quarterly revenue, up 18% sequentially and 40% year over year. Consumer accounted for 13% of quarterly revenue, up 16% sequentially and 21% year over year, marking the fourth straight quarter of double-digit year-over-year growth.

• Fourth quarter revenue is expected to be $3 billion plus or minus $100 million.
• Operating margin is expected to increase to 43.5%, plus or minus one basis point.
• Tax rate is expected to be between 11-13%.
• Adjusted EPS is expected to be $2.22 plus or minus 10¢.

• Geopolitical and macro uncertainty clouding the outlook.
• Tariffs potentially impacting customers and curtail production.
• Supply constraints in the aerospace and defense segment due to surging demand outpacing manufacturing capacity.

Q: Timothy Arcuri asked about industrial growth and inventory build.

A: Richard Puccio said industrial has grown sequentially every quarter, expects Q4 growth in low to mid-teens, channel inventories are lean, and end demand is still double digits below consumption.

Q: Harlan Sur asked about gross margins.

A: Richard Puccio said unexpected lower utilization in Q3 kept gross margin from sequential growth, but utilization is back on track and Q4 midpoint expects 70% margin.

Q: Tore Svanberg asked about automation revenue growth.

A: Vincent Roche said automation business can double by 2030 due to R&D pipeline, opportunity pipeline, and new modalities.

Q: Vivek Arya asked about industrial growth into Q1.

A: Richard Puccio said Q1 is seasonally down, but industrial will be strong; Vincent Roche added industrial is above seasonal due to demand normalization and strong backlog.

Q: Jim Schneider asked about automotive market.

A: Richard Puccio said auto revenue expected to come down in Q4 due to unwinding of early buying, with pull-ins seen in China this time unlike previous quarters.

Q: Stacy Rasgon asked about industrial vs auto trends.

A: Richard Puccio said no pull-ins seen in industrial like auto, Vincent Roche added industrial strength from breadth, depth, and idiosyncratic trends.

Q: Chris Danely asked about utilization and gross margin.

A: Vincent Roche said one-time event in European fab affected Q3, Richard Puccio said utilization is increasing and mix improves with industrial growth.

Q: Joe Moore asked about aerospace and defense supply constraints.

A: Vincent Roche said surging demand outpaces manufacturing in aerospace and defense, Richard Puccio said tools deployed to alleviate stress and rest of industrial is in good shape.

Q: Joshua Buchalter asked about gross margin and mix.

A: Richard Puccio said getting to 70% margin requires normal industrial mix, expected Q4 to have 49% industrial mix leading to 70% margin.

Q: Ross Seymore asked about OpEx.

A: Richard Puccio said variable comp normalized, expects OpEx leverage in 2026 to decline from 2025.

Q: Chris Caso asked about China business.

A: Richard Puccio said confident in China business, China auto strong last quarter, and other industrial end markets in China have runway for growth