Analog Devices (ADI) Q1 2026 Earnings Transcript

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DATE

Wednesday, February 18, 2026 at 10 a.m. ET

CALL PARTICIPANTS

• Chair, President, and Chief Executive Officer — Vincent Roche
• Chief Financial Officer — Richard Puccio
• Vice President, Investor Relations — Jeff Ambrosi

TAKEAWAYS

• Total Revenue -- $3.16 billion, up 3% sequentially and 30% year over year, finishing near the higher end of guidance.
• Industrial Revenue -- Represented 47% of sales; up 5% sequentially and 38% year over year, with every industrial segment up at least 25% year over year and new records for ATE and aerospace and defense.
• Automotive Revenue -- Accounted for 25% of sales; declined 8% sequentially but increased 8% year over year, with growth driven by connectivity and functionally safe power in Level 2 ADAS systems.
• Communications Revenue -- Made up 15% of sales; rose 20% sequentially and surged 63% year over year, supported primarily by data center demand and double-digit wireless growth for three consecutive quarters.
• Consumer Revenue -- Comprised 13% of sales; up 2% sequentially and 27% year over year, fueled by share gains in wearables and premium handsets.
• Gross Margin -- 71.2%, up 140 basis points sequentially and 240 basis points year over year, lifted by better utilization, favorable mix, and 50 basis points from discrete items not previously forecasted.
• Operating Expenses -- $812 million, resulting in a 45.5% operating margin, up 200 basis points sequentially and 500 basis points year over year; above the high end of guidance.
• Nonoperating Expenses -- $53 million; tax rate of 12.7% for the quarter.
• Earnings Per Share (EPS) -- $2.46, up 9% sequentially and 51% year over year.
• Cash & Short-term Investments -- $4 billion at quarter-end; net leverage ratio decreased to 0.8.
• Inventory Metrics -- Inventory increased $111 million sequentially; days of inventory at 171; channel inventory within six- to seven-week range.
• Trailing Twelve Month Cash Flow -- Operating cash flow of $5.1 billion and free cash flow of $4.6 billion (39% of revenue); capital expenditures at $500 million.
• Dividend Growth -- Announced 11% increase, raising the quarterly dividend to $1.10, marking twenty consecutive annual raises.
• Capital Return -- Over $32 billion returned via dividends and share repurchases since 2004; since the Maxim acquisition in 2021, returned more than 100% of cash flow to shareholders.
• Segment Exposure -- AI-driven ATE and data center collectively comprise about 20% of total revenue; ATE grew approximately 40% in fiscal 2025 and further accelerated, while data center grew about 50% in fiscal 2025 and also picked up quarterly.
• Pricing Uplift -- Roughly one-third of the sequential Q2 revenue increase reflects price actions; about half of this is from channel inventory repricing, which will not recur in Q3.
• Q2 Outlook -- Revenue expected at $3.5 billion plus or minus $100 million; operating margin midpoint at 47.5%; tax rate forecasted between 11%–13%; adjusted EPS guidance of $2.88 plus or minus $0.15.
• Industrial Book-to-Bill -- Book-to-bill ratio was well above one in industrial; order growth excluded pricing effects, indicating broad-based cyclical momentum.
• Growth Drivers -- “Well above seasonal growth” for industrial and communications expected in Q2, with industrial guided up 20% sequentially (50% year over year) and communications up high single digits sequentially (about 60% year over year).
• Strategic Investments -- Focus on autonomy, proactive health care, sustainable energy transition, immersive sensory experience, and AI-driven computing/connectivity; AI-related businesses cited as high-return investment areas.

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RISKS

• Richard Puccio said, "You know, while we managed to grow 8% year over year, Q1 was well below seasonal. And our book to bill did end under one. So given the softer bookings you saw and the fact that we now have greater exposure to China than ever, which is typically light in Q2 due to the Chinese New Year, our expectation is that auto will be below seasonal in Q2 or flat versus our typical seasonality."
• Management reiterated, "We do not see any evidence whatsoever of that at this point in the cycle," underscoring that current demand may be supported by cyclical recovery rather than channel replenishment.
• Automotive revenue declined 8% sequentially, attributed to "tariff and macro pull in unwind that we have been talking about since the second and third quarters of last year," with an expectation for continued softness in early 2026.

SUMMARY

The call emphasized broad-based, above-guidance revenue, operating margin, and EPS, with outperforming contributions from AI-driven ATE, data center solutions, and strong communications and industrial demand. Detailed guidance points toward material sequential and year-over-year growth acceleration in industrial and communications, supported by clear price-driven and volume recovery factors explicitly quantified by management. Capital returns exceeded 100% of cash flow since 2021, with a new annual dividend increase, and Q2 projections signal substantial margin expansion, though automotive and consumer segments face sequential headwinds.

• Management clarified that about one-third of Q2's sequential revenue uplift is directly tied to incremental pricing actions, with only a moderate impact expected beyond Q2.
• Channel inventories remain within targeted ranges and "customers are through that digestion phase and are and are essentially ordering to consumption," signaling completion of prior inventory correction cycles.
• Geographically, double-digit year-over-year revenue gains occurred in Asia, Americas, and Europe, with sequential outperformance in Asia and Europe offset by relative weakness in the Americas due to auto and consumer trends.
• The company articulated continued investment at "record levels" in secular growth areas, notably AI, with over $2 billion run-rate achieved for combined ATE and data center revenue and double-digit growth expected in these domains over the next several years.
• Gross margin expansion in the quarter and the Q2 outlook are driven by favorable mix, utilization, and transitory pricing effects, including a 50-basis-point onetime channel repricing boost not expected to recur in Q3.

INDUSTRY GLOSSARY

• ATE (Automated Test Equipment): Semiconductor manufacturing hardware used to test complex ICs, including SoCs, memory, RF, and power devices, validating their performance and reliability during production.
• ADAS (Advanced Driver Assistance Systems): Electronic automotive systems enabling automation, connectivity, and enhanced safety features, such as Level 2 partial driving automation.
• Hot Swap: Power management technology allowing components or subsystems to be added or removed from a system while it remains operational, enhancing uptime and safety in data centers.
• Point-of-Load Converter: Power conversion device located near an integrated circuit that delivers precisely regulated voltages required for high-performance processing workloads.
• OCS (Optical Circuit Switches): Data center switches that use optical signals to connect servers or other devices directly, replacing electrical switching for lower latency and higher bandwidth.
• Book-to-Bill Ratio: A metric comparing new orders received (bookings) to product shipments billed during a period, used as an indicator of demand health and sales outlook.

Full Conference Call Transcript

Vincent Roche: Thank you, Jeff, and a very good morning to you all. Well, we extended our momentum through the first quarter, revenue, profitability, and earnings per share all coming in above the midpoint of our guidance. Year-over-year growth was broad based across our end markets, with particular strength in industrial and communications, reflecting both cyclical improvement and company specific execution. This performance underscores the strength of ADI's and resilient business model, enabling us to navigate uncertainty while continuing to capture share in the markets that matter most. As you have heard me say many times before, the wellspring of ADI's prosperity is built on a culture of relentless innovation and deep customer engagement, across the life cycle of our solutions.

As such, these activities are always our first call on capital. And now we are investing at record levels. At the same time, we remain committed to returning 100% of our free cash flow to shareholders over the long term. And I am pleased to share that we just announced an 11% increase to this year's dividend, extending our impressive track record of annual dividend growth, and reinforcing our focus on delivering consistent shareholder returns. Looking ahead, a strong second quarter outlook and improving demand signals reinforce our belief that fiscal 2026 has the potential to be a banner year for ADI, barring unforeseen material changes in the macroeconomic and geopolitical backdrop.

Now as mentioned in previous calls, we are aligning our strategic investments to key megatrends that we believe offer outsized long-term secular growth potential, namely autonomy, proactive health care, sustainable energy transition, immersive sensory experience, and AI-driven computing and connectivity. And it is in this last area that I will focus the remainder of my comments today. Over our history, we have prided ourselves on our ability to sense the early signals of emerging trends and to invest aggressively to ensure leadership as those trends proliferate. Artificial intelligence is a good case in point.

Our investments targeting solutions for AI's massive performance requirements are generating substantial returns in two distinct parts of ADI, our automated test equipment and data center businesses, which collectively make up close to 20% of our revenue. Now let me begin with automated test equipment or ATE. Revenue increased approximately 40% in fiscal 2025 and further accelerated in 2026, fueled by several factors. ADI's ATE portfolio sits at the heart of the most complex semiconductor production test systems for digital SoC, memory, RF and millimeter wave, and power devices, as well as system level products.

We deliver the integrated pin electronics, device power supplies, and parametric measurement units that drive, sense, and precisely characterize every pin and rail on complex ICs under the most demanding real world conditions. Our application specific solutions are complemented by a suite of analog, RF, and power products, enabling complete high density tests of systems. These solutions enable customers to increase platform channel density and throughput to validate the most advanced nodes and packaging technologies.

Vincent Roche: Faster and more thoroughly. At lower costs with up to 30% less energy consumption per system. As a result, we enjoy industry leadership across the major test platforms and our content per tester stretches into the tens of thousands of dollars.

Vincent Roche: Importantly,

Vincent Roche: we have earned a durable role as the leading edge technology partner in the fast-evolving ATE market, which continues to grow with rising semiconductor complexity and the proliferation of connected intelligent devices. Now let me turn to our data center business, which grew approximately 50% in fiscal 2025 and also saw accelerated growth in the most recent quarter. Several factors are driving this expansion. AI's demand for faster processing speeds and greater power density, combined with the monumental increase in data volume, is creating exponentially greater complexity in data centers. This in turn drives the need for faster innovation cycles and new architectures. And ADI's analog and mixed signal power and optical portfolios are critical to this evolution.

I will talk a bit now about power management, which is increasingly a system-level differentiator in AI data centers. At a high level, it breaks down into power delivery and power control. Think of power delivery as the vascular system moving energy across the data center. As customers migrate to higher voltage architectures, safely moving larger amounts of power becomes foundational. Protection is nonnegotiable. As the consequences of faults rise sharply for both uptime and safety, ADI's hot swap and high performance protection solutions, which represent roughly one third of our data center power revenue today, enable predictable fault isolation, fast recovery, and live maintenance, allowing racks to run continuously even as power levels increase.

Beyond protection, architectural change is also expanding our role in power delivery. We continue to see strong growth in point-of-load converters, micro modules, and high performance regulators. Newer approaches such as vertical power and higher voltage distribution are now opening incremental SAM for ADI. We shipped our Smart PowerStage to our first vertical power customer last quarter, and adoption of our intermediate bus converter modules is accelerating for 48- and 54-volt architectures. Now think of power control as the brain of the data center energy system. AI performance per watt depends on how precisely power is regulated and converted at the GPU or CPU.

Roughly one third of our data center power revenue comes from DC power control, including our power system management ICs and multiphase controllers. AI accelerators demand fast, highly efficient digitally controlled power conversion, from the rack down to tightly regulated core voltages. ADI's analog and mixed signal solutions abilities to enable higher compute density and better system-level performance are driving increasing demand and design wins. To sum up our AI data center power story, ADI enables customers to move power safely, regulate intelligently, and scale AI infrastructure for the future. As power becomes a strategic constraint in AI data centers, our suite of high performance technologies and system-level approach position us well for the next wave of infrastructure growth.

Finally, turning to our optical connectivity portfolio. As AI continues to scale, the amount of data that must move within and between data centers is increasing exponentially. To deliver AI-class bandwidth and latency, industry leaders are rearchitecting their networks, increasingly replacing traditional electrical switching with optical circuit switches, or OCSs. In this environment, performance is no longer defined solely by the optical modem system.

Vincent Roche: It increasingly depends on the precision control, monitoring,

Vincent Roche: and power solutions, the nervous system, if you will, around the laser DSP and photodiode signal chain. By tightly integrating precision control, temperature regulation, real-time monitoring, and compact high performance power management, ADI allows optical systems to operate at higher speeds with lower power and in smaller form factors. This enables data center operators and carriers to increase front panel bandwidth density, reduce power consumption and cost per bit, and accelerate time to market. As AI workloads continue to drive faster upgrade cycles and new network architectures, our ability to help our customers manage optical complexity, performance, and economics positions us well to benefit from AI-driven infrastructure investment in the future.

So in closing, it is important to remember that AI is just a part of our larger growth story. Our diverse business model is enabling profitable growth across numerous trends, markets, and applications. And as a result, I have never been more optimistic about our future at the Intelligent Edge. And with that, I will pass it over to Rich. Thank you, Vince. And let me add my welcome to our first quarter earnings call.

Richard Puccio: Revenue in the first quarter came in toward the higher end of our outlook at $3,160,000,000, growing 3% sequentially and 30% year over year. Industrial represented 47% of strength with our first quarter revenue, finishing up 5% sequentially and 38% year over year, broad based with all segments delivering growth of 25% or more on a year-over-year basis and including record quarters for ATE and aerospace and defense. Automotive represented 25% of revenue, finishing down 8% sequentially and up 8% year over year. We saw continued year-over-year growth for our leading connectivity and functionally safe power portfolios driven by our strong position in Level 2 ADAS systems.

Communications represented 15% of revenue, finishing up 20% sequentially and 63% year over year. Accelerating year-over-year growth was led by our data center business, as increasing investments in AI infrastructure continue to drive robust demand for our optical and power portfolios. Wireless also recorded accelerated growth driven by cyclical improvements and has now grown double digits for three consecutive quarters.

Vincent Roche: And lastly, consumer.

Richard Puccio: Represented 13% of quarterly revenue, finishing up 2% sequentially and 27% year over year. Year-over-year growth was due to an upside across all consumer applications with notable benefits from content and share gains in the fast-growing wearables market and in premium handsets. Now onto the rest of the P&L. First quarter gross margin was 71.2%, up 140 basis points sequentially and 240 basis points year over

Vincent Roche: year, driven by higher utilization

Richard Puccio: favorable mix, and roughly 50 basis points from discrete items, which were not included in our original forecast. OpEx in the quarter was $812,000,000, resulting in an operating margin of 45.5%, above the high end of our guidance, up 200 basis points sequentially and 500 basis points year over year. Nonoperating expenses were $53,000,000 and the tax rate for the quarter was 12.7%. All told, EPS was $2.46, up 9% sequentially and 51% year over year. Now I would like to highlight a few items from our balance sheet and cash flow statements. Cash and short-term investments finished the quarter at $4,000,000,000 and our net leverage ratio decreased to 0.8.

Inventory increased $111,000,000 sequentially with days of inventory finishing at 171. Channel inventory increased, ending within our six- to seven-week range. We are continuing to build die bank and finished good buffers to help support the upside we are seeing while balancing a strategically leaner channel position. Over the trailing twelve months, operating cash flow and CapEx were $5,100,000,000 and $500,000,000 respectively. We continue to expect fiscal 2026 CapEx to be within our long-term model of 4% to 6% of revenue. Free cash flow over the trailing twelve months was $4,600,000,000 or 39% of revenue.

As a reminder, we target 100% free cash flow return over the long term, using 40% to 60% for our dividend and the remainder for share count reduction. To that end, since the inception of our capital return program in 2004, we have returned more than $32,000,000,000 to shareholders via dividends and share repurchases. And since our Maxim acquisition in 2021, we have returned more than 100% of cash flow to our shareholders. And as Vince mentioned, yesterday, we announced our 20 consecutive annual dividend increase, raising the quarterly amount by 11% to $1.10. Now moving on to our second quarter outlook. Revenue is expected to be $3,500,000,000 plus or minus $100,000,000.

Operating margin at the midpoint is expected to be 47.5% plus or minus 100 basis points. Our tax rate is expected to be between 11%–13%, and based on these inputs, adjusted EPS is expected to be $2.88 plus or minus $0.15. In closing, our strong first quarter performance and favorable second quarter outlook underscores ADI's disciplined execution and the growing momentum we are seeing with customers across our end markets. While the macro backdrop remains fluid, demand indicators continue to trend favorably and I believe we are well positioned to continue capitalizing on the opportunities ahead. With that, I will give it back to Jeff for Q&A. Thank you, Rich. 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, please requeue, and we will take your question if time allows. With that, operator, we will have our first question, please.

Operator: Thank you.

Operator: For those participating by telephone dial in, if you have a question, please press 11 on your phone to enter the queue. If your question has been answered and you wish to be removed from the queue, please press 11 again. Our first question comes from Jim Schneider with Goldman Sachs. Your line is open. Good morning and thanks for taking my question. Good job on the results.

I am curious as you look forward over the next quarter or two, whether you expect to continue to see above seasonal performance in the Industrial segment in particular and can you maybe also discuss whether you are seeing any kind of signs of OEM customer restocking at this stage or not yet. Thank you.

Jeff Ambrosi: Sure, Jim. Thanks for the question. You know, so obviously, Q2 is our strongest sequentially strongest sequential quarter, normally up in the mid single digits, 4% or 5%. And our and our outlook, which embeds sell-in equal to sell-through, reflects about an 11% sequential growth. Implying, you know, obviously, significantly above seasonal growth. You know, by our by end market, as we look out for Q2, what we expect to see is

Richard Puccio: industrial continuing strong, up 20% sequentially and well above seasonal at 50% year over year. You know, clearly being aided by the cyclical recovery and our strength in ATE and ADAS.

Jeff Ambrosi: You know, we expect comps to be up high single digits sequential. Sequentially, excuse me, above seasonal and sick

Richard Puccio: about 60% year over year. Again, we as we have talked about now, the AI surge for data center and the wireless cyclical recovery are both thriving.

Jeff Ambrosi: Know, from an auto perspective, we do expect that to be flat to down sequentially. A bit below seasonal, and this is a as we have talked about, largely due to the

Richard Puccio: tariff and macro pull in unwind that we have been talking about since the second and third quarters of last year.

Jeff Ambrosi: And then consumer in Q2, we expect to be down mid single digits

Richard Puccio: in line with seasonality. And then, you know, obviously, we do not guide out to the third quarter. But I will remind everybody that our, you know, our third quarter is typically up low single digits.

Vincent Roche: Yeah. I think, Jim, one other comment you asked as well about any evidence of restocking. We do not see any evidence whatsoever of that at this point in the cycle.

Richard Puccio: Thank you, Jim. Move to our next caller, please.

Operator: Thank you. Our next question comes from Stacy Rasgon with Bernstein Research. Your line is open.

Vincent Roche: I was wondering if you could give us some color on

Stacy Rasgon: gross margin and OpEx drivers embedded in the guide. I know OpEx, I presume, is up on variable comp. Gross margin, I assume, mix and utilization. And just any color you can give us on those drivers within the model would be helpful. Thank you.

Jeff Ambrosi: Thanks, Stacy. I will I will start. I will go through the GM question first.

Stacy Rasgon: So, obviously, as you saw in the in the post, Q1's gross margin was 71.2%. This was higher than expected on better mix, stronger utilization, and then a few items that we did not forecast. During Q1, you know, we have gotten closer to our optimal utilization level. So as we look out, we expect only to see modest upside from utilization. And in our Q2 outlook, we are assuming 100 bps of gross margin expansion or up essentially 150 bps versus Q1 because that excludes the discrete items that I mentioned in my prepared remarks.

And, again, the expected increase here is driven by favorable mix and uplift from price, which includes 50 bps that will not repeat in Q3, since it relates to the onetime effect of repricing our inventory in the channel. So, you know, you would expect us not to see that same 50 bps recur. On the operating margin side, you know, you know, for us, Q1 was roughly in line with expectations. You know, the beat at the operating margin line was driven mostly by the stronger gross margin we just talked about. You know, in Q2, I see OpEx growing in the mid single digit range. Obviously, have no shutdown in the second quarter.

Continuing to hire in strategic investment areas. We have got a higher bonus factor. We have got our GTC conference. But we will see OpEx as a percent of revenue fall and with the expected growth in gross margin, we see about 200 basis points of sequential improvement in Q2, so 47.5 at the midpoint. And for the full year, we continue to expect OpEx growth to trail revenue growth by roughly half. Of the things that is sorry, Stacy, one last point. I was just one other thing just to clarify on the gross margins on a reported basis up 100 bps.

And excluding the 50, the 50 bps of onetime would be up 150 on a normalized that is that is that is what you said. Yes. Correct, Stacy. Got it. I just wanted to make sure I had that. Thank you. Yep. Yeah. And then the last thing highlighted No. It is okay, Stacy. With you know, we obviously have ex have been talking about seeing increased leverage this year

Vincent Roche: a part which is the

Richard Puccio: the large reset on the variable comp headwind we spoke about last year. And, obviously, we are seeing that leverage play out.

Jeff Ambrosi: Alright. Thank you, Stacy.

Richard Puccio: Take our next caller, please. Thanks, Stacy. Thank you.

Operator: Thank you. Our next

Operator: question comes from Harlan Sur with JPMorgan. Your line is open.

Richard Puccio: Good morning and congratulations on the strong

Harlan Sur: quarterly execution.

Richard Puccio: Within your AI business, you know, connectivity, power, ATE, that was a great overview, Vince, of the differentiation in your prepared remarks.

Harlan Sur: You articulated a strong portfolio of RF mixed signal, power products and performance differentiation, but

Richard Puccio: the analog team has always further differentiated on systems-level integration, software, digital signal processing. So

Jeff Ambrosi: how are you leveraging your software DSP and systems

Richard Puccio: capabilities to gain further traction in this very fast growing end market.

Vincent Roche: Yeah. Thanks, Harlan. Good question. Well, I would say first foremost, if you look at ADI's trajectory over the last five to ten years, we have been approaching our innovation activities centered around application system knowledge. And that has enabled us to capture more of the customer's complexity, boil it down, increase our ASPs. So I think what we see in certainly the power side of things is a mix of all the technologies. You know, in the last up to kind of the last three or four years, most of the power business was about the analog circuits that configured the power systems. But tomorrow's systems are going to be more and more digitally controlled, if you like.

So that is where a lot of our digital signal processing heritage will come increasingly into play in these multiphase, very, very high speed conversion systems where precision is critically important and being able to manage more and more rails of power. So that is a very, very good use, and example of where our digital heritage comes into play with the with the mixed signal as well as the power technologies. In the optical sector and around the optical modem, the nervous system as we call it, again, that is a mix of a lot of digital functionality that partners with our mixed signal conversion systems, as well as the power.

So everything we do these days has a strong mix of analog, increasingly digital, and increasingly software. And even you may have seen, I think, the last earnings call, we talked about a couple product platforms that we had brought to market in the fourth quarter that had machine learning embedded in them as well. Mhmm.

Jeff Ambrosi: Okay, Harlan. Thank you, Vince.

Richard Puccio: We will move to our next caller, please.

Operator: Thank you. Our next question comes from Vivek Arya with Bank of America Securities. Your line is open.

Vivek Arya: Thanks for taking my question. I was hoping you could quantify your data center exposure across ATE optical and power. What is that exposure right now? How much did it grow last year?

Vivek Arya: And then what is the right way to kind of model growth for that

Vivek Arya: segment going forward? And part of that, you know, power is a high growth segment, but it tends to be very crowded. So I am curious, Vince, what is your visibility around keeping or extending your market share in that segment? Thank you.

Vincent Roche: Maybe I will start with the last piece. Yeah. Look. The AI thrives in an environment of incredibly hard problems. And the problems in the power system are becoming increasingly difficult. In both scope and form. So that is the sweet spot for ADI. And we are able to approach the solution of these problems at the system level by virtue of the knowledge that we have in the area of thermodynamics, for example, electromagnetics, coupled with our circuit magic and all the mixed signal and signal processing technology that will go around those things. So I think the problems are becoming more and more difficult.

And in fact, there is a norm in the high performance computing world that ultimately computing performance equals availability of power. And that power has got to be delivered with increasing efficiency, you know, in tighter and tighter spaces. So we feel good about the possibility of differentiating for the long term there. What was the growth stuff, Rich? You want to breakdown between ATE data center and then within the yeah. Yeah. So, Vivek, so if think about our data center business,

Richard Puccio: Vince commented on the call, it is roughly 20% of total ADI now. It is over a $2,000,000,000 run rate. And to think about the breakdown there, about 40% of that is ATE. The rest is data center. And then within data center, it is pretty balanced between power and optical.

Vivek Arya: And historical and any forward kind of looking growth objectives? Yeah. If you happen?

Vincent Roche: Well, I think it is it is safe to say that these areas will all grow at double digits over the next several years.

Operator: K. Thank you, Vivek.

Operator: K.

Richard Puccio: Move to our next question, please.

Operator: Thank you. Our next question comes from Timothy Arcuri with UBS. Your line is open.

Timothy Arcuri: Thanks a lot. You had been thinking that you are shipping about 10% to 12% below consumption. Where do you see that in the guidance for April? And then do you think by the end of the year, if you are sort of, you know, seasonal plus, you know, through the fiscal year, will you be shipping to consumption by the

Richard Puccio: end of the year?

Timothy Arcuri: Thanks, Tim. I will take that one. So as we have talked about, if you look at that longer term trend line, you know, where we have been shipping well under in 2024 and 2025, you know, our sense now is customers are through that digestion phase and are and are essentially ordering to consumption. And we think that is broadly true across the end markets, but, you know, there is probably some differences across the diversified, you know, customer and application base. You know? And, obviously, for everybody who we do not talk always about this. When we talk about consumption, you know, we are talking about that long term linear trend line for shipments.

But we do expect that we are nearing

Richard Puccio: you know, customers ordering at consumption across the board.

Timothy Arcuri: And I think Vince mentioned earlier, we have not seen evidence yet that there has been restocking activity across our portfolio. Thank you, Tim.

Operator: Move to our next question, please.

Operator: Thank you. Our next question comes from Joshua Buchalter with TD Cowen. Your line is open.

Joshua Buchalter: Hey, guys. Thanks for taking my question, and congrats on another set of strong results and guidance. Response to an earlier question, you mentioned that Industrial was growing because of the cyclical recovery. But again, you have been very clear that you are not seeing evidence of restocking. Any help you can give us on where you are seeing the biggest signs of demand recovery? Because outlook does seem, you know, well better than most of peers. And how much is the idiosyncratic growth drivers? And any help you can give us on

Richard Puccio: on how much

Joshua Buchalter: your industrial is growing ex ATE in the near term? Thank you. Alright. Thanks for that question, Josh. So I will just do a little bit of a level set. Know, since we called the bottom industrial, obviously, our most profitable business has grown sequentially every

Richard Puccio: quarter. And in Q1, our actually, our book to bill was well above one. And that does include ex excuse me, does exclude any impact from pricing. So

Joshua Buchalter: we feel very good about where we are landing from an orders perspective on the industrial. You know, for four straight quarters, we have been an above seasonal growth with double digit year-over-year growth. And that is driven by strength across all of the industrial segments. And I think that is part of what is indicative of the cyclical momentum we have been highlighting. Adding to that is our strength in ATE and aerospace and defense. Which, as we have talked about, is about a third of our industrial. Each of which are continuing to achieve new highs and given that momentum in bookings and backlog, we do not see this trend stopping.

As for the other two thirds of industrial, we are still

Richard Puccio: 20% below previous peaks.

Joshua Buchalter: So we have got plenty of room to go as the cyclical men momentum continues. Evidenced by improving PMIs, positive book to bill across

Richard Puccio: all industrial sectors, and all geographies.

Joshua Buchalter: And embedded in our outlook for industrial is to, as we said, to lead our growth sequentially up 20% plus. And we expect all of our segments to increase led by ATE, which is growing greater than 30% sequentially. So very broad based. And I will highlight one other point that we have been talking about, and this is one of the pieces of evidence we look for in the

Richard Puccio: cyclical piece. The

Joshua Buchalter: we continue to see growth in the broad market industrial. You know, we are we are we are now seeing normalized ordering patterns for an upcycle in the broad based industrial market?

Richard Puccio: Thank you, Josh.

Operator: Thank you.

Richard Puccio: Move to our next question, please.

Operator: Thank you. Our next question comes from Tom O'Malley with Barclays. Your line is open. Hi. This is Matt Penn on for Tom O'Malley. Just curious if you are seeing any particular strength or weakness from a regional perspective. Thank you.

Jeff Ambrosi: Yeah. So

Matt Penn: geographically, in Q1, we saw broad based strength. We had double digit year-over-year growth in Asia, Americas, and in Europe. When we look at it on a sequential basis, we saw strength in Asia and Europe while Americas were down from typical buying, you know, customer buying behavior in consumer and the weaker auto demand.

Richard Puccio: Thank you. We will move to our next question, please.

Operator: Thank you. Our next question comes from Joe Moore with Morgan Stanley. Your line is open.

Joseph Moore: Great. Thank you. You talked about the reasons for auto

Operator: remaining a little bit softer. Any signs there of, you know,

Joseph Moore: stabilization or potential growths? As you as you move past this subsidy environment?

Stacy Rasgon: Sure. I will I will I will give a little bit of context, and then and then what we are seeing and what we have we have got it then baked into our guide. You know, obviously, this has been a really strong growth market for us. We have been growing double digits through this through the cycle, particularly as we have gained, you know, content and share. In particularly in our connectivity and power for the ADAS systems. And as we have talked about in the past, we have had notable share gain in China, which is you know, taking

Richard Puccio: largely taking light vehicle share from other regions. So it drove a record 2025.

Stacy Rasgon: So now you look near term. You know what? We said in the prior call that we were approaching Q1 with some caution. As we had flagged some unusual behavior. Related to tariffs where we thought we saw some order acceleration. We suspect it would be a headwind in Q1 and feel that is probably what happened here. You know, while we managed to grow 8% year over year, Q1 was well below seasonal. And our book to bill did end under one.

So given the softer bookings you saw and the fact that we now have greater exposure to China than ever, which is typically light in Q2 due to the Chinese New Year, our expectation is that auto will be below seasonal in Q2 or flat versus our typical seasonality

Vincent Roche: of plus mid single digits.

Stacy Rasgon: Now what is important to note is nothing is changed with respect to our strong share position and underlying content growth.

Jeff Ambrosi: That

Stacy Rasgon: therefore, we are pretty confident that once we get past the headwinds in the first half, our second half will be stronger, and I actually believe that auto will grow in fiscal 2026 versus what was a record fiscal 2025.

Operator: Great. Thank you.

Richard Puccio: Thank you. Move to our next caller, please.

Operator: Thank you. Our next question comes from Ross Seymore with Deutsche Bank. Your line is open. Hi, I just wanted to dive back into the Industrial side. Guiding up 20%, I cannot remember you guys ever, unless it was a Maxim or Linear quarter, guiding that business up. So how much of that is ASPs? And how much of it is secular? And how much is

Richard Puccio: cyclical? Any sort of breakdown on that would be helpful. Yeah. Yeah. Maybe I will kinda break down the growth. So, you know, you know, 20% plus, obviously, a very strong sequential growth, Ross. Know, we are not going to break out price by end market, but, you know, as we commented on, there is some lift there from price. But importantly, I think what Rich said was if you exclude any pricing impact, our book to bill in industrial was well above one, and that included strength across regions and across applications. So everything, you know, is driving growth for us really in our industrial market.

Then as far as what is cyclical and what is secular, you know, if you just take our ATE and aerospace and defense business, that is roughly one third of industrial. And as Rich talked about, that is those are continuing to drive new highs. Pretty clear end demand drivers in those markets. And then you know, while there are sick sec there is probably more secular tailwinds in the in the other parts of industrial, but right now, you know, kind of where those are relative to their past peaks, you can kind of, you know, call that cyclical, but there is certainly content gain elsewhere if you think about automation.

And, you know, energy and health care, there is definitely secular trends there as well.

Vincent Roche: Yeah. I think it is it is worth noting that none of this has happened by accident. You know? Industrial has always really been, when we think about the sectors within aerospace and defense, health care, and so on, instrumentation. You know, these are very, very core parts of the identity of ADI, and we have been investing. We have been, you know, bringing new strands of innovation to that business now for several years, and we are seeing the benefit of that, particularly right now in the ATE as well as the aerospace and defense areas.

So but, you know, as Jeff and Rich have unpacked the story for you, you know, price resiliency is also very, very strong in this business. Life cycles are long. So overall, we have got stability with some very, very good tailwinds driving the industrial business ahead.

Richard Puccio: Thank you. We will move to our last caller, please.

Operator: Thank you. Our final question comes from Chris Caso with Wolfe Research. Your line is open.

Richard Puccio: Yes. Thank you. Good morning. I just wanted to ask

Chris Caso: a bit more on your comments on pricing. And I understand that some of that pricing benefit is onetime because what is going on the channel. But perhaps you could speak more broadly on what you are seeing with pricing, where you would expect your blended pricing to be for the year, and, you know, what you know, how much of this is coming down to what the customers are actually paying?

Vincent Roche: Yeah. Well, Chris, thank you for the question. The first thing I will say is that really not much has changed in our approach to pricing. You know, as a company, we have always been dynamically adjusting the prices of the portfolio really to reflect the value of the solutions that we deliver over the life cycle, the entire life cycle of our products. So you know, I think our ability and our track record of delivering the highest level of system performance in the analog space and ultimately, the total cost of ownership benefits to our customers has always enabled ADI to attract a premium, an innovation premium and that premium actually is extending.

And you know, over the last few years, as you know, we have committed quite a bit of capital to augment the supply side of our value proposition, the support side, and, you know, giving our customers greater optionality from a regional and geographic perspective. But at the same time, we have, like everybody else, we have been facing persistent inflation, and what we have done in terms of this latest tranche of price increase really just a practical response to the inflationary environment. So I think that is the way to think about it. We there is a dynamic ongoing element to what we do and a response to the current economic environment.

Rich, do you want to say anything else on this, or Jeff?

Operator: Yeah. So Okay. I obviously,

Jeff Ambrosi: you guys you have heard us talk about the pricing adjustments that we made with our channel partner

Richard Puccio: that went into effect at the start of Q2. I would add a couple of things. We are also largely through our annual negotiation with our direct customers,

Stacy Rasgon: so our Q2 results should reflect the full scope of our recent pricing actions. And the way to think about it, just to help you guys out here, the overall impact of the pricing actions on our Q2 outlook is about a third of the quarter-over-quarter revenue increase at the midpoint is related to price. Excluding the pricing uplift, our sequential growth outlook is more like 7% versus the 11% I mentioned before. Still nicely above our 4% to 5% seasonality. And importantly, as I mentioned, roughly half of the price lift relates to repricing of channel inventory, which will not repeat in Q3.

You know, the other thing I would just to help you out is I think going forward, you know, I think that we would expect about 50 bps of incremental growth in each of Q3 and Q4 related to price. So it is you know, over the full period, it is it is not a huge number, but that is the right kind of sizing.

Operator: Alright.

Richard Puccio: Alright. Thank you, Chris. Alright. Thanks, everyone, for joining us today. A copy of this transcript will be available on our website, and all available reconciliations and additional information can also be found in the quarterly results section of our relations website, investor.analog.com, and thank you for your continued interest in Analog Devices, Inc.

Operator: This concludes today's Analog Devices, Inc. conference call. You may now disconnect.

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