Analog Devices (NASDAQ:ADI) CFO Richard Puccio said the company is seeing the benefits of both company-specific growth drivers and a broader cyclical recovery, following what he described as nine consecutive quarters of above-seasonal performance. Speaking at a Morgan Stanley semiconductor conference, Puccio pointed to strength in several end markets—particularly within industrial and data center—while also outlining the company’s approach to inventories, pricing, margins, and capital allocation.
Idiosyncratic drivers: ATE, aerospace and defense, and data center
Puccio highlighted several areas he characterized as “idiosyncratic,” where Analog Devices has benefited from share gains or strong positioning in specific applications.
Puccio also cited aerospace and defense as another industrial sub-segment with strong tailwinds. He attributed the demand environment to increased defense and aerospace spending in the U.S. and Europe and said the company expects this segment to grow above the company average. He added that Analog Devices has increased the value it captures by selling more modules and solutions rather than discrete components, referencing capabilities strengthened through prior acquisitions such as Hittite.
In communications, Puccio said data center demand has been a major driver, describing the communications segment as roughly two-thirds data center, with the data center portfolio split approximately 50/50 between power and optical. He said the company is already shipping its first 1.6 terabit optical module and that R&D teams are working on 3.2 terabit solutions.
Broader industrial recovery and improving cycle indicators
On the cyclical side, Puccio said the company has been waiting for a broader “mass market” recovery in industrial and that the pickup began mid-2025 and accelerated. He said more than 90% of the parts the company would expect to move in a typical upcycle are now moving.
Puccio also described signs that customers and distributors have worked through excess inventories following a multi-year channel “lean out.” He said Analog Devices is seeing stronger turns business—enabled by regular lead times—while maintaining that customers have not yet rebuilt buffer inventories. He noted that about 90% of the company’s parts have lead times under 13 weeks, which reduces incentives for buyers to order far in advance unless supply tightens.
He added that while certain industrial sub-segments such as ATE and aerospace and defense are at record levels, others—including automation, energy, and healthcare—remain about 20% below prior peaks, suggesting room for continued recovery. Puccio said the company exited fiscal Q1 with positive book-to-bills across all industrial sub-markets and geographies, and he noted this was before any impact from Q1 price increases.
Channel inventory strategy and supply positioning
Puccio said the company had briefly dropped below its preferred channel inventory level of roughly six weeks, prompting it to put “a little bit of inventory back in the channel” in Q3 and Q4. However, he said Analog Devices does not expect to add more channel inventory at the midpoint of its guidance.
He also described a strategic shift away from a historical seven- to eight-week channel model. The company now prefers to keep more inventory on its own balance sheet, which he said provides better control and flexibility when supply conditions tighten. Puccio added that Analog Devices has built more die bank and finished goods buffers to capture turns demand.
Automotive: lean inventories, China exposure, and ADAS content
In automotive, Puccio said the business declined only low single digits from peak to trough and has delivered back-to-back record years. He attributed performance to share capture, content gains, and a strong position in China, where he said much of the market’s growth has been concentrated. He also noted that China now represents about one-third of Analog Devices’ global automotive business.
On near-term dynamics, Puccio said he expects full-year auto unit volume forecasts to be “flattish to maybe slightly down” and said that could affect the back half of the year. While agreeing inventories appear lean, he described earlier buying behavior that the company observed across automakers, followed by a book-to-bill below one in automotive exiting Q1. He said there could be “a little bit more” of that in Q2, but he would not expect additional corrective activity beyond that.
Discussing competitive dynamics in China, Puccio said Analog Devices tends to compete less in the lowest-ASP segments and instead focuses on higher-value applications such as high-performance battery management, high-performance communications links, and functionally safe power. He cited forecasts he has seen indicating L2+ ADAS penetration in China rising from about 10% exiting 2025 to upwards of 30% in 2026, which he said would increase content opportunity.
Pricing, margins, operating leverage, and capital allocation
Puccio said the company implemented price increases after absorbing rising input costs and costs associated with building additional manufacturing resiliency over the past three to four years, including internal capacity expansion and cross-qualification efforts. He characterized the decision as a response to an inflationary environment and an effort to “recapture some of that value.”
On gross margin, Puccio said recent pressure has been driven by mix and underutilization, but utilization is now near what he called an optimal level, limiting further upside from that factor. He emphasized mix as a key lever going forward. Puccio noted that industrial was 53% of revenue at peak and fell as low as 44% during the downcycle; the company is currently around 48% industrial. He added that industrial and communications tend to be above corporate average margin businesses, while consumer and automotive are typically below.
On operating expenses, Puccio said 2025 opex grew roughly in line with revenue due to variable compensation normalizing from unusually low levels. Looking ahead, he said variable compensation is likely to be higher in 2026 than 2025, but a smaller driver as a percentage. He also said the company expects opex growth to be about half the rate of revenue growth in 2026 and cited company guidance for Q2 operating margin improvement of roughly 200 basis points.
Puccio also provided an update on revenue synergies from the Maxim acquisition. He said Analog Devices targeted $1 billion of synergies by 2027, with “tens of millions” achieved in 2024, “hundreds of millions” in 2025, and expectations for “several hundred million more in 2026 than we did in 2025.” He said the company feels confident it is on track for 2027.
On capital returns, Puccio reiterated a commitment to return 100% of free cash flow, with a 40%–60% mix to dividends and the remainder to share repurchases. He said the company recently increased its dividend for the 22nd year, describing the increase as about 11%. He also said Analog Devices has reduced share count by 10% since the Maxim acquisition through repurchases.
About Analog Devices (NASDAQ:ADI)
Analog Devices, Inc (NASDAQ: ADI) is a multinational semiconductor company that designs, manufactures and markets a broad portfolio of analog, mixed-signal and digital signal processing integrated circuits. Founded in 1965 by Ray Stata and Matthew Lorber, the company has grown into a leading supplier of components that convert, condition and process real-world signals for electronic systems. Analog Devices is headquartered in Massachusetts and serves customers around the world across multiple end markets.
The company’s product lineup includes data converters (ADCs and DACs), amplifiers, power management ICs, radio-frequency (RF) and microwave components, sensors and MEMS devices, signal chain and isolation products, timing and clocking solutions, and embedded processors and software for system-level design.
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