Analog Devices (NASDAQ:ADI) Chief Financial Officer Richard Puccio said the chipmaker is seeing a broader cyclical recovery take hold alongside company-specific growth drivers in areas such as data centers, aerospace and defense, and automotive.
Speaking at a BofA Securities conference in a discussion moderated by Managing Director Vivek Arya, Puccio said Analog Devices has been “on a journey since the trough of the cycle,” with some resilient parts of the business beginning to grow in the second half of 2024. More recently, he said, the company has seen “very significant growth” over multiple quarters in the mass-market portion of the business, which he described as a classic sign of an upcycle.
Industrial Demand Remains Lean, With Room to Recover
Puccio said Analog Devices does not believe it is shipping above underlying consumption trends, which could indicate inventory building. He pointed to the industrial segment, about half of the company’s business, as an example. The company is running what he described as a leaner-than-historical channel, at roughly six to seven weeks of inventory.
Within industrial, Puccio said about 40% of demand is coming from aerospace and defense and infrastructure, areas where the company can see the end-market drivers clearly. The remaining 60% of industrial remains about 20% below prior peaks and below the long-term consumption line, he said, suggesting “there’s still certainly room to run” in broader industrial markets.
Data Center Growth Supported by Power and Optical Opportunities
Puccio said communications demand is increasingly tied to data centers, which now represent about three-quarters of Analog Devices’ communications business. He said hyperscalers and platform companies remain constrained by capacity and continue to build infrastructure to meet demand.
In data centers, Puccio said Analog Devices’ power and optical businesses are roughly equal parts of the company’s portfolio, while ATE remains another growth area. He said the larger potential opportunity may be in power, particularly as architectures move toward higher voltages and vertical power delivery.
Puccio highlighted integrated voltage regulator technology, saying it can reduce power consumption by 10% to 15% and reduce the board footprint. He said vertical power appears likely to be a key architecture as data centers face increasing power constraints.
Automotive Orders Accelerated Late in the Quarter
Puccio said automotive demand improved faster than the company expected. Analog Devices had anticipated growth in automotive for the year despite coming off a record 2025, he said, but orders accelerated in the final month of the most recent quarter.
He said China automotive is now about 30% of the company’s auto business and remains strong, supported by electric vehicle growth and increased penetration of Level 2 advanced driver-assistance systems. Puccio said even if auto units remain flat, rising ADAS content creates more opportunity for Analog Devices.
Puccio also said the company recorded record automotive revenue in Europe and Japan, while the U.S. remained a laggard. Battery management systems posted their first year-over-year growth quarter in two years, which he described as important given the company’s exposure to electric vehicles.
Asked whether the auto cycle has bottomed, Puccio said it depends on how the cycle is defined. He noted that forecasts still show auto units moving closer to 2024 levels, but said Analog Devices’ content gains and share are allowing it to grow.
Pricing Increase Tied to Inflation, Not Shortages
Puccio said Analog Devices’ recent broad price increase was not driven by shortages. He said lead times remain largely within normal ranges, with only small extensions in some high-volume areas.
Instead, Puccio said the company has absorbed inflation in areas such as gold, fuel and transportation, and decided it was appropriate to recover some of those costs. “This was not a go improve our margin strategy,” he said, adding that the company is trying to maintain margins while being fair to customers.
He said pricing remains dynamic, with Analog Devices continuing to emphasize innovation and value capture during the design-in phase. Puccio noted that the company’s average selling prices are about four times the industry average and that products introduced within the past 10 years have roughly double the ASPs of older products.
Aerospace, Defense and Capital Allocation
Puccio said aerospace and defense remains a strong growth area, supported by expected spending increases in the U.S., Europe and parts of Asia-Pacific. He said Analog Devices has exposure across defense, space, low-Earth orbit satellites and base stations that communicate with satellites.
On margins, Puccio said there is still potential for gross margin improvement, though future gains are more likely to come from mix and revenue growth than from higher factory utilization. He said industrial currently represents about 50% of the business, compared with 53% to 54% at peak-margin levels.
Discussing cash use and acquisitions, Puccio said large industry consolidation is more difficult in the current regulatory environment. He said Analog Devices is focused on delivering revenue synergies, targeting $1 billion by 2027, and will continue to evaluate smaller deals in software, digital capabilities and AI that help solve customer problems or accelerate time to market.
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.
