Analog Devices outlines $2.75B Q3 revenue target as industrial and consumer lead growth amid inventory normalization
May 22, 2025 12:27 PM ET
AI-Generated Earnings Calls Insights
Earnings Call Insights: Analog Devices (ADI) Q2 2025
Management View- CEO Vincent Roche stated that "our second quarter results exceeded our expectations both on the top and bottom lines. Revenue growth was broad-based with double-digit year-over-year growth across all end markets." Roche highlighted increasing confidence that revenues bottomed in 2024 and that the company is returning to growth in fiscal 2025. He emphasized the company's significant investments in capacity expansion at U.S. and European fabs, enhanced partnerships with global foundries, and product qualifications to "quickly swing production across geographies" to increase supply resilience.
- Roche provided specific examples of demand, noting that ADI's solutions are driving growth in smart wellness wearables, clinical imaging, industrial automation, robotics, and the automotive sector. In AI-driven computing and connectivity, he described continued rising demand for ADI's products in ATE and data center segments, stating, "our content per tester stretches into the hundreds of thousands of dollars," and that further enhancements could increase this figure.
- Roche concluded with, "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."
- CFO Rich Puccio announced, "second quarter revenue of $2.64 billion came in above the high end of our outlook, up 9% sequentially and 22% year-over-year." He reported that industrial, automotive, and communications each saw sequential and double-digit year-over-year growth, with consumer revenue also up 30% year-over-year. Puccio highlighted a rising net leverage ratio improvement, a $50 million sequential inventory increase, and free cash flow of $3.3 billion over the trailing 12 months. He noted, "we have returned nearly $2.5 billion to shareholders through dividends and share repurchases."
- A significant management change was announced, as Mike Lucarelli will depart his role as Vice President of Investor Relations, with Jeff Ambrosi stepping in as his replacement.
Outlook- Puccio provided guidance for Q3, stating, "third quarter revenue is expected to be $2.75 billion, plus or minus $100 million." He added, "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." Operating margin is projected at 41.5%, plus or minus 100 basis points, and adjusted EPS is expected to be $1.92, plus or minus $0.10. The tax rate is forecast between 11% and 13%.
- Puccio described the current demand environment as "choppier than normal" due to tariff announcements, but noted that "orders have returned to more normalized levels." He stated that Q2 bookings grew sequentially across all end markets and geographies, and backlog entering Q3 is higher than a quarter ago.
Financial Results- Revenue reached $2.64 billion, with industrial contributing 44%, automotive 32%, communications 12%, and consumer 12%. Industrial revenue increased 8% sequentially and 17% year-over-year; automotive revenue rose 16% sequentially and 24% year-over-year; communications saw a 5% sequential and 32% year-over-year increase; and consumer was flat sequentially but up 30% year-over-year.
- Gross margin was 69.4%, up 60 basis points sequentially. Operating margin stood at 41.2% and EPS was $1.85, up 32% year-over-year. Inventory increased to $50 million, days of inventory decreased to 169, and free cash flow for the trailing 12 months was $3.3 billion.
Q&A- Joseph Moore, Morgan Stanley: Asked about drivers of automotive growth and the impact of tariffs. Puccio responded that Q2 was "notably stronger than expected," with "auto results aided by pull-in activity" around tariff news, particularly in the Americas and Europe. He estimated pull-in upside in the "high single-digit range" and expects a decline in auto for Q3, signaling normalization.
- Vivek Arya, Bank of America Securities: Queried about undershipment and recovery timing in industrial. Roche said industrial had been "undershipping significantly" for two years but is "getting back to a more...normalized convergence between demand and supply." Puccio added that shipments were still "10-plus percent below the low-end consumption" but projected shipping to end demand in Q3.
- Harlan Sur, JPMorgan: Sought details on industrial automation and tariff impact. Puccio confirmed positive book-to-bill above one for all industrial subsectors and ongoing sequential growth in automation. Roche noted strong geographic book-to-bill and the importance of automation despite tariff uncertainty.
- Tore Svanberg, Stifel: Asked about robotics and AI trends. Roche described a "new epoch...in robotics," with increasing content per system and long-term opportunity, noting "AI will enable more and more intelligence at the edge."
- Chris Danely, Citi: Questioned operating leverage and OpEx growth. Lucarelli explained variable compensation and salary increases are impacting OpEx, while Puccio expects gross margin to reach "around 70%" with strong industrial growth.
- Stacy Rasgon, Bernstein Research: Inquired about SAAR expectations and industrial pull-forward risk. Puccio said SAAR is expected to be down in the back half, but "continued increase in content" should offset some pressure, and no unusual booking trends were seen outside automotive.
- Further questions focused on normalization of demand, channel inventory, and supply chain flexibility, with management consistently emphasizing strong bookings, normalization, and capacity investments.
Sentiment Analysis- Analysts were generally positive but pressed for details on growth drivers, normalization timing, and the impact of tariffs, reflecting cautious optimism with some skepticism around sustainability and inventory dynamics.
- Management maintained a confident tone during prepared remarks—Roche stated, "we're ever more confident that our revenues bottomed in 2024"—and remained consistent in Q&A, providing detailed explanations and addressing concerns directly, though acknowledging uncertainty from tariffs and macro factors.
- Compared to the previous quarter, analysts maintained a similar level of cautious optimism, while management showed increased confidence in recovery and growth trajectories.
Quarter-over-Quarter Comparison- Guidance for Q3 moved up, with revenue target increasing from $2.5 billion in Q2 to $2.75 billion in Q3, and EPS guidance rising from $1.68 to $1.92. Management's language shifted to a more confident outlook, emphasizing broad-based recovery and higher confidence in reaching the top end of full-year growth targets.
- Industrial and automotive segments remained strong, but this quarter's automotive growth was partially attributed to tariff-driven pull-ins, with guidance for a sequential decline. In contrast, industrial is projected to lead Q3 growth, reflecting normalization of supply and demand.
- Management's tone was more assertive about the cyclical upturn, while analysts continued to focus on inventory, normalization, and the sustainability of demand.
Risks and Concerns- Tariff-related volatility was cited as a challenge, with Puccio noting "buying behavior was a bit choppier than normal as we saw some increased activity around the tariff announcements."
- Management acknowledged the potential for further volatility but emphasized capacity investments and supply chain flexibility as mitigation strategies.
- Analysts raised concerns about pull-ins distorting demand and the timing for normalization, as well as the impact of tariff uncertainty on automation and automotive segments.
Final Takeaway
Analog Devices management expressed increased confidence that the company has passed the trough and is positioned for growth in fiscal 2025, supported by strong demand across end markets, ongoing supply chain investments, and the normalization of inventory levels. With revenue guidance for Q3 set at $2.75 billion and industrial and consumer expected to drive further growth, management highlighted robust bookings, improved operational leverage, and a resilient business model as key factors in navigating ongoing macro and geopolitical uncertainties. |
