Analog Devices, Inc. Q1 FY2026 earnings call

• Vincent Roche mentioned they extended momentum in Q1 with revenue, profitability, and EPS above guidance midpoint, broad-based year-over-year growth in end markets with strength in industrial and communications. They're investing at record levels, committed to returning 100% free cash flow to shareholders, and announced an 11% dividend increase. Aligned strategic investments to mega trends like autonomy, proactive healthcare, etc. Talked about AI-related businesses: Automated Test Equipment revenue up ~40% in fiscal '25 and accelerated in Q1 '26, data center business grew ~50% in fiscal '25 and accelerated in recent quarter with power management and optical connectivity being key areas. - Richard Puccio highlighted Q1 revenue at $3.16 billion, breakdown by segments, gross margin, OpEx, EPS, balance sheet and cash flow details, and Q2 outlook with revenue expected at $3.5 billion plus or minus $100 million, operating margin midpoint 47.5% plus or minus 100 basis points, tax rate between 11%-13%, adjusted EPS expected at $2.88 plus or minus $0.15.

Revenue in Q1 was $3.16 billion, up 3% sequentially and 30% year-over-year. Industrial: 47% of revenue, up 5% sequentially and 38% year-over-year; strength broad-based with all segments up 25%+ y-o-y including record quarters for ATE and aerospace & defense. Automotive: 25% of revenue, down 8% sequentially and up 8% year-over-year; continued y-o-y growth in connectivity and functionally safe power portfolios. Communications: 15% of revenue, up 20% sequentially and 63% year-over-year; data center business growth driven by AI infrastructure investments, wireless also saw accelerated growth. Consumer: 13% of quarterly revenue, up 2% sequentially and 27% year-over-year; growth due to upside across all consumer applications including wearables and premium handsets. First quarter gross margin was 71.2%, up 140 basis points sequentially and 240 basis points year-over-year. OpEx was $812 million, resulting in operating margin of 45.5%, above high end of guidance. Cash and short-term investments finished quarter at $4 billion, net leverage ratio decreased to 0.8. Inventory increased $111 million sequentially. Trailing 12 months operating cash flow was $5.1 billion, CapEx was $0.5 billion, free cash flow was $4.6 billion or 39% of revenue.

• Second quarter revenue expected to be $3.5 billion, plus or minus $100 million. - Operating margin at midpoint expected to be 47.5%, plus or minus 100 basis points. - Tax rate expected to be between 11% and 13%. - Adjusted EPS expected to be $2.88 plus or minus $0.15. - Fiscal 2026 CapEx expected to be within 4%-6% of revenue. - Target 100% free cash flow return over long term, using 40%-60% for dividend and remainder for share count reduction.

• Q: Jim Schneider asked about whether to continue seeing above seasonal performance in Industrial segment and signs of OEM customer restocking.

A: Q2 outlook embeds sell-in equal sell-through with Industrial up 20% sequentially and well above seasonal at 50% year-over-year; no evidence of restocking at this point. - Q: Stacy Rasgon asked about color on gross margin and OpEx drivers in guide.

A: Q1 gross margin 71.2% due to better mix, stronger utilization and discrete items; Q2 expected 100 bps gross margin expansion excluding discrete items, driven by favorable mix and price uplift; OpEx in Q2 growing in mid-single-digit range, expected to trail revenue growth by roughly half. - Q: Harlan Sur asked about leveraging software, DSP and systems capabilities in AI business.

A: ADI's innovation centered around application system knowledge, digital signal processing heritage coming into play in power systems and optical sector with mix of analog, digital and software. - Q: Vivek Arya asked about quantifying data center exposure across ATE, optical and power.

A: Data center business roughly 20% of total ADI, over $2 billion run rate, ~40% ATE, rest data center, balanced between power and optical; these areas expected to grow double digits over next several years. - Q: Timothy Arcuri asked about where seeing 10%-12% below consumption in guidance for April and if will be shipping to consumption by end of year.

A: Customers are through digestion phase and ordering to consumption, nearing across board, no evidence of restocking. - Q: Joshua Buchalter asked about biggest signs of demand recovery in industrial and how much industrial is growing ex ATE.

A: Industrial has grown sequentially every quarter, book-to-bill well above 1, strength across all segments, ATE and Aerospace & Defense continuing to achieve new highs, other 2/3 of industrial still 20% below previous peaks, outlook for Industrial up 20% plus led by ATE growing >30% sequentially. - Q: Nat Penn asked about regional perspective.

A: Q1 broad-based strength in Asia, Americas and Europe; sequential strength in Asia and Europe, Americas down from typical buying due to consumer and weaker auto demand. - Q: Joseph Moore asked about signs of auto stabilization or growth past subsidy environment.

A: Auto was strong growth market, Q1 below seasonal and book-to-bill under one, expectation auto below seasonal in Q2 or flat, but second half expected stronger and auto to grow in fiscal '26. - Q: Ross Seymore asked about breakdown of industrial growth in terms of ASPs, secular and cyclical.

A: Industrial growth 20% plus, book-to-bill in Industrial well above 1 excluding pricing impact, ATE and Aerospace & Defense ~1/3 of industrial with clear end demand drivers, other parts of industrial with secular tailwinds and cyclical momentum. - Q: Christopher Caso asked about broader pricing and blended pricing for year.

A: ADI dynamically adjusts prices to reflect value, recent price increase a response to inflationary environment; Q2 results should reflect full scope of recent pricing actions, overall impact of pricing actions on Q2 outlook about 1/3 of quarter-over-quarter revenue increase at midpoint related to price, roughly half of price lift relates to repricing of channel inventory not repeating in Q3, overall impact of price in Q3 and Q4 about 50 bps incremental growth each.