Analog Devices Management Discusses Q2 2012 Results - Earnings Call Transcript

Analog Devices (ADI)

Q2 2012 Earnings Call

May 22, 2012 5:00 pm ET

Executives

Maria Tagliaferro - Director of Corporate Communications

Jerald G. Fishman - Chief Executive Officer, President and Director

David A. Zinsner - Chief Financial Officer and Vice President of Finance

Vincent T. Roche - Vice President of Sales and Strategic Market Segments Group

Analysts

Doug Freedman - RBC Capital Markets, LLC, Research Division

Deepon Sen Gupta

Emily Scudder

Christopher J. Muse - Barclays Capital, Research Division

Christopher B. Danely - JP Morgan Chase & Co, Research Division

Uche X. Orji - UBS Investment Bank, Research Division

James Covello - Goldman Sachs Group Inc., Research Division

Aashish Rao - BofA Merrill Lynch, Research Division

Jonathan Steven Smigie - Raymond James & Associates, Inc., Research Division

Craig A. Ellis - Caris & Company, Inc., Research Division

Stacy A. Rasgon - Sanford C. Bernstein & Co., LLC., Research Division

Bheeshm Chaudhary - Deutsche Bank AG, Research Division

Sumit Dhanda - ISI Group Inc., Research Division

David M. Wong - Wells Fargo Securities, LLC, Research Division

Presentation

Operator

Good afternoon. My name is Natalie, and I will be your conference facilitator. At this time, I would like to welcome everyone to the Analog Devices Second Quarter Fiscal Year 2012 Earnings Conference Call. [Operator Instructions] Thank you. Ms. Tagliaferro, you may begin.

Maria Tagliaferro

Thank you, Natalie, and good afternoon, everyone. This is Maria Tagliaferro, Director of Communications for Analog Devices, and we appreciate you joining us for today's call. If you haven't yet seen our second quarter fiscal year 2012 press release or Form 10-Q, you may access both by visiting our website at investor.analog.com. You may also access the live webcast of this conference call from the same page. A recording of this conference call will be available today within about 2 hours of this call's completion and will remain available via telephone playback for one week. The webcast will also be archived on the IR website.

In addition, we have updated the schedules on our IR website, which include the historical quarterly and annual summary P&Ls for continuing operations, as well as historical quarterly and annual information for revenue from continuing operations by both end market and product type.

Participating with me on today's call are Jerry Fishman, President and CEO; David Zinsner, Vice President of Finance and CFO; and Vincent Roche, Vice President of Sales and Strategic Market segments. During the first part of the call, Jerry and Dave will present our second quarter 2012 results, as well as our short-term outlook. The remainder of the time will be devoted to answering questions from our analyst participants.

I'd ask you to please note that the information we are about to discuss includes forward-looking statements intended to qualify for the Safe Harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements include risks and uncertainties, and our actual results could differ materially from those we will be discussing. Factors that could contribute to such differences include, but are not limited to those described in our SEC filings including our most recent quarterly report on form 10-Q filed earlier today.

The forward-looking information that is provided on this call represents our outlook as of today, and we do not undertake any obligation to update the forward-looking statements made by us. Subsequent events and development may cause our outlook to change. Therefore, this conference call will include time-sensitive information that may be accurate only as of the date of this live broadcast, which is May 22, 2012.

With that, I'll turn the call over to ADI's CEO, Jerry Fishman, for opening remarks.

Jerald G. Fishman

Well, thanks, Maria, and good afternoon to everybody on the call. Our revenues in our second quarter totaled approximately $675 million, which was up slightly more than 4% sequentially, but down about 15% compared to the year-ago quarter. You might remember the year-ago quarter when ADI revenue peaked, as customers built inventory to reduce the risk of supply disruptions that were widely feared after the March 2011 earthquake and tsunami.

The industrial end markets, which are typically seasonally strong for ADI in the second quarter turned even better performance than we had planned and grew about 12% sequential. All of the major application areas within industrial grew sequentially, and it was led by over 20% sequential growth in both instrumentation and in energy.

Health care and industrial automation, which includes process control, as well as defense, aerospace and security, also grew sequentially in the second quarter.

In general, indications in the industrial market are that customers have stopped depleting inventory and our current orders more closely matched consumption levels, certainly much more closely than had been the case over the last few quarters.

In the industrial market, ADI is well recognized as the best brand amongst the wide range of industrial applications, and many of these applications we now believe have the potential for above market growth rates in the future.

Revenues also increased sequentially from communications infrastructure customers, as both wired and wireless applications grew about 3% sequentially. Communications order rates began very slowly in the early parts of Q2, but improved significantly toward the end of the quarter.

For the past few quarters, operators have worked to increase capacity at minimal cost by implementing software upgrades rather than hardware upgrades. But to date, networks in many regions of the world are very much overloaded, and operators find it difficult to respond to significantly higher bandwidth requirements from applications, such as streaming video by using existing equipment. As a result of new equipment upgrade cycles, ADI's leading technology portfolio and very strong customer relationships with the largest market shareholders in the infrastructure market, we expect our sales into communications applications to grow throughout the second half of our fiscal year and also into 2013.

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