ADI • 10-K • FY 2022 • Positive

ADI Rides Industrial & Auto Demand While Supply Chain Challenges Persist

November 22, 2022 • 1 min read

TL;DR

Analog Devices delivered record revenue of $12.01B in FY2022, up 64% YoY, driven by strong industrial and automotive demand. Gross margins expanded 170bps to 62.6% despite supply chain headwinds, reflecting pricing power and mix improvement. The Maxim integration is ahead of schedule with $160M in cost synergies realized. Looking ahead, ADI faces macro uncertainty but benefits from secular trends in electrification and automation.

Financial Performance Overview: Revenue surged 64% to $12.01B with industrial segment growing 77% to $5.83B and automotive up 89% to $2.44B. Gross margin expanded 170bps to 62.6% while operating margin reached 45.2%. Free cash flow generation was robust at $3.83B (32% of revenue). The Maxim acquisition contributed significantly, with combined company operating margins exceeding initial targets by 200bps.
Strategic Initiatives and Operational Changes: ADI accelerated integration of Maxim Integrated, achieving $160M in cost synergies ahead of schedule. The company increased R&D investment to $1.66B (13.8% of revenue) focused on power management and signal processing innovation. Manufacturing capacity expansion progressed with new facilities in Philippines and Oregon, while internal fab utilization remained above 90%.
Market Position and Competitive Dynamics: ADI maintained leadership in precision analog with 50%+ market share in key industrial segments. Customer concentration decreased with no single customer exceeding 10% of revenue. Design win momentum accelerated in automotive electrification, with battery management systems wins up 40% YoY. Texas Instruments remains primary competitor but ADI's specialized focus yields higher margins.
Operational Efficiency and Profitability: Gross margins benefited from improved product mix and pricing actions, offsetting higher input costs. Operating expenses as percentage of revenue declined 200bps to 29.4% through synergy capture and operating leverage. Factory utilization remained optimal above 90%, though supply constraints limited upside. Inventory turns improved to 3.2x from 2.8x in prior year.
Growth Catalysts and Material Risks: Key growth drivers include electric vehicle adoption (45% CAGR in battery management systems), industrial automation, and 5G infrastructure deployment. Primary risks include semiconductor cyclicality, China exposure (25% of revenue), and ongoing supply chain constraints. Management expects continued strong design win momentum but acknowledges macro uncertainty could impact near-term demand.

Revenue

$12.01B ( YoY) with industrial leading at $5.83B

↑ +64%

Rd Spend

$1.66B ( YoY) at of revenue

↑ +12%

Net Income

$2.75B ( YoY) with margin

↑ +58%

Gross Margin

(+170bps YoY)

↑ 62.6%

Free Cash Flow

$3.83B ( YoY) with conversion rate

↑ +45%

Operating Margin

(+310bps YoY)

↑ 45.2%

Growth Indicators

Book-to-bill >1 throughout FY22

Design Wins ↑40% YoY growth in automotive electrification

Customer Count ↑>125,000 with no customer >10% of revenue

Key Risks

Semiconductor industry cyclicality could impact demand
China exposure (25% of revenue) amid geopolitical tensions
Supply chain constraints limiting growth potential
Increasing competition in power management solutions

Key Opportunities

Electric vehicle battery management systems growing 45% annually
Industrial automation driving precision measurement demand
5G infrastructure deployment supporting communications growth
Healthcare precision measurement applications expanding

Bottom Line

ADI's FY2022 performance demonstrates successful execution of Maxim integration while maintaining operational excellence. Strong secular growth drivers in electrification and automation support continued momentum despite macro headwinds. Key metrics to watch include book-to-bill ratio, customer inventory levels, and China exposure impact. The company's leadership in precision analog and diversified end-market exposure provide resilience, though cyclical risks remain.