模拟芯片近况（附ADI纪要）

标题：ADI 20Q2业绩交流会纪要

会议时间：2020年5月20日

免责声明：本会议纪要由方正证券科技团队翻译/整理，可能存在与该公司官方公布的纪要原文/录音有不一致或不准确之处，请投资者以上市公司发布的纪要原文/录音为准。本会议纪要内容仅供投资者参考，不包含任何方正证券研究所的投资意见和建议，投资者需自行承担投资决策的风险。

文森特·罗奇（Vincent Roche）

谢谢你，迈克，祝大家早安。

我希望您和您的家人在此期间都能保持安全健康。首先，我们要感谢卫生保健工作者以及保护我们社区健康和福祉的前线许多英雄。

当我们在2月中旬进行最后一次业绩电话会议时，我们才刚刚开始了解COVID-19对中国的影响，自那以后，这种流行病对世界产生了深远的影响，给社会带来了巨大压力，当然还包括全球经济。

为了平衡这一点，我们已经看到政府采取了前所未有的反应，部署了财政和货币政策以缓解经济下滑，并在可能的情况下重启经济活动。尽管我们的行业不能幸免于动荡的经营环境，但我相信技术将缓解当前的弱势，并在大流行之后推动新的需求和商业模式。这并不是说我们停滞不前。我们已采取措施减少支出并加强了现金状况。我们正在从这个充满挑战的时期中学习，并迅速进行调整，同时仍在进行投资，以确保我们在复苏和长期发展中处于有利地位。

我们的团队已经接受了许多员工在家工作的挑战，但是显然不是每个人都可以远程工作，我想感谢并感谢我们的制造业员工。我们一直在以非凡的表现为客户服务。

对于支持我们临床操作的这些员工，我们已经实施了保护措施来保护他们，包括增加个人防护装备，增加社会距离和提高卫生水平。此外，我们还为他们提供了额外的激励措施和利益，以使他们在这个非常困难的时期能够持续发展。我们的团队在与客户保持紧密联系方面也做得非常出色。

我们迅速采取行动，调整生产线，并优先考虑了与COVID-19对抗所需的医疗保健解决方案。这使我们能够为医疗保健客户加快呼吸机，呼吸器，成像系统和病人监护仪等产品的供应，我为在应对这一严峻挑战中所表现出的足智多谋和奉献精神感到无比自豪。

此外，通过ADI基金会，我们已经捐赠了数百万美元，以支持全球和本地的大流行应对工作，但我们的工作超出了财政贡献。

我们还与医院和生物技术初创企业合作，开发利用我们技术的解决方案，例如快速现场诊断测试和临床患者监测。

所以现在我想讨论一下当前的操作环境。鉴于当前危机的影响范围和深度，全球商业活动已被中断，如今，我们已经看到汽车，基础广泛的工业和消费类业务的需求在下降。

然而，事实证明，与全球金融危机期间相比，我们的业务更具弹性。为此，医疗保健需求达到了创纪录的水平，并且跨无线乃至有线部门的通信需求都非常强劲。我们也看到了部分工业仪器业务的实力和国防业务的稳定。

现在，成功并非偶然。通过我们对Hittite和LTC的有机投资和收购，ADI是一家与我们十年前截然不同的公司，拥有更多的多样性，在高性能模拟，电源和RF领域拥有更广泛的产品组合，并且对利润更高且更耐用的终端市场的投资更高。现在让我转到等式的另一端，谈谈供应。

在世界各地，许多政府下令执行就地庇护规定，关闭边界时，供应链受到干扰。对于ADI，3月中旬在菲律宾、马来西亚和新加坡的后端测试和组装站点的产能有所减少。一旦获得基本地位，我们将迅速而负责地采取行动，以确保员工安全并提高我们的能力。

今天，我很高兴地说我们在正常的产能水平下运营。这表明了我们全球运营的敏捷性以及ADI在全球范围内员工的奉献精神。尽管需求和供应环境充满不确定性，但我们实现了13.2亿美元的收入和1.08美元的每股收益。这与我们在第一季度财报电话会议上提供的原始范围一致，强调了在任何经济背景下我们业务模型的弹性和灵活性。

现在，由于我们已动员起来在短期内保持ADI的实力，因此我们正在利用许多机会来巩固和扩大我们的长期市场地位。我们的团队仍然专注于我们的三个战略重点。

因此，让我为您简要介绍每个更新。首先是资本的有效利用。重要的是，ADI具有充足的财务流动性，可以满足我们在关键投资，股息支付和偿还债务方面的业务需求。尽管当前存在宏观环境，我们在过去的12个月中仍产生了18亿美元的自由现金流，占销售额的32％。

这使ADI继续成为标准普尔500指数中前10％的股票。在我们55年的历史中，我们通过采取纪律严明且平衡的财务管理方法，成功地碰到并成功度过了数次黑天鹅事件。

具体来说，我们资本的第一个呼吁就是为新产品开发提供资金。这意味着对我们的人员和技术进行明智的投资，以确保我们继续提供颠覆性的创新。

在刚刚过去的一个季度中，我们将收入的19％用于研发，将95％的资源用于我们B2B市场上最有吸引力的机会。我们还致力于以股息为基石，为股东带来可观的回报。在本季度，我们通过股息和股票回购向股东返还了超过3.4亿美元。

因此，让我谈谈我们的第二个优先事项，即最大程度地影响客户。我们一直在不断创新，以保持领先于客户的需求，尽管COVID-19带来了新的挑战，但它也为我们提供了新的机遇。

在本季度中，我们的客户参与度并未放缓。我们举办了数百场虚拟研讨会，有成千上万的客户参加，对他们进行了新解决方案和新技术的培训。

这些互动非常富有成效。我们看到跨市场和客户的新产品开发的设计活动有所增加。例如，我们与一个关键的电动汽车客户合作，重新想象了如何在整个车队中呈现音频。

由于双方之间的合作日益集中，我们将高性能音频数字信号处理器添加到了A2B平台中，使每辆车的内容量增加了一倍以上。在用于数据中心计算的仪器测试业务中，我们继续与客户合作，以降低他们的系统复杂性并更快地推向市场。我们的创新解决方案结合了我们的模拟混合信号和电源微模块产品组合。这些解决方案提供了四倍的信道密度，同时提高了吞吐量。尽管这只是两个例子，但在我们所有的市场中，还有更多的例子。正是这种当前的设计活动使ADI加速了大流行后的发展。

我们的第三个优先事项是利用长期趋势来扩展我们的目标市场并推动多元化增长。尽管每次低迷都有其独特的特征，但它们似乎都有一个共同点，那就是它们带来了巨大的变化。行业比以往任何时候都更优先考虑数字化和连接性，并且新兴行业正在关注物理和网络。

数据诞生的ADI是这些令人兴奋的长期增长机会的核心。我今天想与您分享一些想法。如前所述，我们的医疗保健业务提供了几种对COVID-19的诊断和治疗至关重要的技术。退后一步，ADI多年来一直致力于这一市场，因为我们预计创新将带来更好的患者结果。

现在，这场危机将挑战我们重新思考并希望快速追踪全球医疗保健的可及性，可负担性和健康重点。为了实现这一目标，将需要升级医疗保健系统，并且需要将临床级别的患者监护从医院扩展到患者家中。

将需要大规模采用传感，计算和云功能。我们相信ADI Technologies将处于这一转型的最前沿。随着越来越多的人进行远程工作，以数字方式进行业务处理以及从任何地方消费媒体，通信市场正在快速发展，以适应带宽和延迟带来的压力。在这里，ADI在建立始终互联的世界所需的基础架构方面发挥着至关重要的作用。

我们集成的收发器，电源和光控制产品组合使客户能够经济地扩展其投资，以构建下一代网络。我们将继续创新，以满足未来的性能，尺寸和电源需求，从而使我们获得份额以获取更多价值。我们受益的另一个长期趋势是工业4.0的兴起。尽管这种趋势并不是那么新，但大流行却将其转移到了客户需求的最前沿。

显然，大流行后的供应链将被重新构想，新的供应链将被建立，这些供应链将更加灵活，自动化并且可能具有主权。为了解决随之而来的经济负担，客户将通过智能且相互连接的工厂车间以及更多使用机器人，协作机器人和分析技术来进一步实现业务自动化。

这给我们的精密信号链和电源系列带来了额外的需求，并将ADI扩展到了软件IO，深度感应，基于状态的监视和强大的连接性等新领域。除了这些长期的增长趋势之外，我个人还受到我们在短时间内看到的巨大可持续性收益的启发。

例如，我们已经看到二氧化碳，一氧化二氮和一氧化碳的大量减少。我相信ADI和整个行业可以并且应该利用其创造力来更好地管理这个星球。

我们最近发布了名为《工程优良》的全面企业责任报告。我可以向您保证，随着我对ADI在这里的领导地位的坚定承诺，将会有更多的发展。因此，最后，经济复苏的形势仍然非常不确定，并且取决于许多变量。

尽管我们对今天提供的前景充满信心。这种空前的宏观背景将在未来一段时间内继续影响供求动态。我们正在接受短期挑战，并通过利用我们的人才，我们的技术和客户参与的集体力量，我非常有信心我们将变得更加强大。

因此，我想将其移交给Prashanth。

Prashanth Mahendra-Rajah

谢谢文斯。

让我在第二季度收益电话中欢迎大家。提醒一下，除收入和非运营费用外，我今天的评论将进行调整，其中不包括今天新闻稿中概述的特殊项目。早在3月，由于COVID的传播造成了巨大的不确定性并影响了我们的供应链，因此我们将为第二季度提供指导。

但是，我们迅速果断地采取了行动，我很高兴地说我们第二季度的业绩在我们最初的预期之内，收入为13.2亿美元，营业利润率为38％，每股收益为1.08美元。如果没有这些容量限制，我们相信收入将超过我们第一季度收益所提供的原始中点，或增加约5,000万美元。

因此，让我们进入市场结果。由于COVID-19，我们的B2B市场季度内非常波动，相对而言符合我们的预期。 B2B收入环比增长3％。如果没有供应方面的限制，我们将实现中位数到高个位数连续增长的前景。

值得注意的是，我们取得了这些成绩，同时本季度减少了6000万的渠道库存。工业业务占本季度收入的54％，比上一季度增长4％，比去年同期下降8％。尽管我们在大多数应用程序中遇到了基础广泛的弱点，但我们的医疗保健内存测试和能源垂直行业都比去年同期有所增长。

占收入比重为21％的通信业务，比上一季度增长15％，而艰难的业绩同比下降了24％，无线和有线业务均表现疲软。这个市场现在并将保持蓬勃发展，但鉴于我们在5G和光学控制系统中的定位，从长远来看，它将是ADI的高增长市场。

汽车，占收入的14％，比上一季度下降12％，比去年同期下降23％，而所有主要应用的销售额均下降。毫不奇怪，我们的汽车业务受到汽车销量下降和全球生产放缓的影响。由于许多客户被要求暂停其操作以响应COVID-19。

最后，占总收入11％的消费者业务环比下降了14％，同比下降了5％，这是由于较低的消费者支出影响了便携式设备和消费产品。值得注意的是，我们继续预计2020年将成为我们消费行业的最低谷。

让我们进入第二季度的损益表。毛利率环比下降67.7％，这是由于产量下降和我之前提到的工厂关闭导致利用率低所致。提醒一下，我们希望通过优化生产规模，到2021财年可以节省1亿美元的商品成本。

运营支出为3.9亿，比上一季度下降5％，连续第六个季度下降。这是由于我们针对流感大流行采取了快速积极的措施，以及我们继续关注成本管理。

营业利润率达到38％，比上一季度增长100个基点，比去年同期下降。非美国通用会计准则费用为4,900万，比上一季度有所增加，但与去年相比下降了1000万以上。我们本季度的税率约为11％，所有第二季度调整后的EPS均为1.08美元。

现在，让我们转到资产负债表和现金流量。在本季度，我们积极加强了强大的流动性头寸。我们偿还了3亿美元的债券，随后又从半导体行业的第一笔绿色债券中筹集了4亿美元。

另外，作为谨慎措施，我们还在本季度中旬暂时中止了股票回购计划。结果，我们在本季度末拥有约8亿现金和约5.6亿的总债务。

在过去的12个月里，我们的净债务与EBITDA的比率为1.9倍。从资产负债表上的现金到循环信贷安排下的承诺，ADI的流动资金超过20亿美元，轻松超过了我们的年度股息支付和2021年1月到期的债务。库存与第一季度相比基本持平。但是，库存天数从133天减少至126天。我们的可售收入大大低于我们在分销商处的可销售收入。

正如我提到的，我们在第二季度减少了约6000万的渠道库存。这使我们在2020财年上半年的总渠道减少量达到1亿左右。目前，渠道库存处于我们七到八周范围内的低端水平。

因此，在本季度的现金流完成后，来自运营的现金流为4.29亿美元，而资本支出为6000万美元。我们预计下半年的资本支出将显着下降，并在今年下半年低于我们正常的收入目标范围4％。

在本季度，ADI支付了大约2.3亿股股息，并回购了1.14亿股我们的股票。在连续12个月的基础上，自由现金流达到18亿美元，占收入的32％。在此期间，我们减少了约4亿美元的债务，并通过股利向股东返还了约8.3亿美元，并通过回购向股东返还了5亿美元。

提醒一下，我们的资本返还政策是将减少债务后的所有自由现金流返还给股东。我们希望在2020财年将债务减少3亿至5亿，并返还剩余自由现金流的100％。

在展望未来之前，我想强调一下我们在需求和供应方面所看到的。正如文斯（Vince）先前提到的，在目前的宏观背景下，我们的业务表现良好。医疗保健非常强大，我们预计这一优势将持续到下半年。

我们看到5G部署中的无线通信以及数据中心和网络升级中的有线通信需求强劲。这种优势使我们的工业仪器业务受益，我们在该行业中销售用于存储器和5G测试的高性能解决方案。

最后，在所有经济背景下，国防通常都是一项稳定的业务。总而言之，这些市场占ADI去年收入的近一半。从供应的角度来看，我们进入第三季度的正常产能水平。

这是非常了不起的，我想回应文斯对全球敬业的制造团队的赞赏。这将我们带入了第三季度展望。预计收入将与上一季度持平，为13.2亿正负7000万，这比通常的范围更大，以解决不确定的环境。

该前景包括由于产能限制而从第二季度开始的大约5000万收入。我们假设此计划中的渠道库存不变。我们预计通信业务将出现强劲的环比增长，工业和消费者的环比将适度下降，而汽车的环比将急剧下降。

总而言之，B2B应该比上一季度略有增加，并且同比下降不到10％。我们预计运营利润率约为38.3上下150个基点。我们计划本季度的税率在12％至13％之间，根据这些投入，调整后的EPS预计为1.08美元（上下浮动0.11美元）。

正如文斯所说，我们对第三季度的前景充满信心，但我们意识到周围的巨大不确定性。我们的运营模式是保守计划并积极执行，以在短期内保持自由现金流。同时，我们仍专注于长期发展，继续投资以在几个令人兴奋的长期增长领域中捕捉并创造价值。

QA

John Pitzer

我想，Vince今天早上从投资者那里得到的问题只是相对于您7月份财报季的指导。您的大多数同行一直在指导比季节性低10至15个百分点。你们的指导值比季节性指标低约五个百分点。为什么？

文森特·罗奇（Vincent Roche）

在过去的一个季度中，我们在医疗保健业务方面看到了巨大的实力，并且我们预计这种情况还将持续下去。通常来说，在虚拟商务中，在家工作，我们再次看到对通信产品的非常非常强烈的需求。

ADI的光缆产品组合表现特别出色，当然5G尤其是在中国和亚洲，5G的发展正在迅速发展。因此，我们所看到的，我们所预测的未来是基于我们所看到的订单流以及其他任何东西的预测。基于我刚才提到的领域中的优势，我们感到很自在。我们的国防业务在继续保持强劲增长。

同样，与之相关的企业（例如用于内存，存储等的高级仪器测试系统）的数据中心和云的扩展也表现得特别出色。

因此，整个工业业务在那里存在。正如Prashanth所说，我们可能会看到适度的下降，即第三季度的季节性下降。因此，总体而言，它们是驱动。正如Prashanth所说，我们预计汽车业务将大幅下滑，但当你看看跌期权和沽出期权时，你就会发现这个季度的情况正在好转。

Prashanth Mahendra-Rajah

我将提供一些有关订单和前景的背景知识，这可能会帮助投资者了解我们的指南为什么会出现在这里。如此迅速，就像2月份预期的那样疲软，3月份在中国的推动下又恢复了强劲，但除了客户担忧之外，还有一些相当强劲的需求，然后开始修正。

所以四月很疲软，一直持续到五月。在除汽车以外的所有市场中，我们的订单出货比均高于1.0。因此，我们的预期建立在对整个季度的订单将继续放缓或最佳情况稳定的预期之上。我们现有的指南建立在100％的积压覆盖率基础上，该覆盖率远高于本季度这一刻的正常水平。

我们正在与客户合作，并且我们会严格执行他们的条款，因此除非我们同意授予例外，否则任何客户或下订单都无法在35天之内取消。

因此，这有助于清理积压订单和取消订单。因此，我认为，鉴于不确定性的数量，这些假设都是合理的，我们确实在此范围内加或减了70来反映不确定性。

John Pitzer

正如您在准备好的评论中提到的那样，Industry 4.0的概念已经存在了一段时间，但是看起来COVID确实有可能以我们现有的方式引起人们的关注。我想这可能也有助于5G的建设，因为没有5G骨干很难建立一个智能的工厂车间，但是我希望您能帮助我们为您定义这个市场机会。当您看一看智能工厂车间时，今天它在工业业务中所占的比例是多少？如果真正开始加速，我们应该如何考虑三到五年的潜在增长率？

文森特·罗奇（Vincent Roche）

是的，这是一个很好的问题，约翰。今天我要说的是，我们认为具有高度云连接的工业部门的工业4.0规模很小。我认为今天，它可能不到工厂自动化和过程控制系统总安装量的10％，但是我们现在从许多客户那里获得的情报是，有两点推动了行业重新部署的需求。所以大概是三件事。

第一，他们需要了解如何收集和利用数据分析来改善其客户的结果。因此，这将自动假设您部署了5G，部署了光纤连接，以及许多形式的较短的可靠连接。我还认为-我们正在全球范围内看到供应链的脆弱性。

客户告诉我们，他们希望将更多的机器功能带入供应链管理中。 第三，我认为是供应链的区域化或郊区化 ，我们可以看到全球范围内的压力。

更不用说人口统计学了，许多生产大量资本产品和消费品的社会，例如德国，中国，以及随着美国开始将供应链区域化，我们很可能会看到Cobotics和更多机器人技术的普遍采用。

因此，约翰，我认为还有很长的路要走。 我们正处于工业4.0的早期阶段。

Tore Svanberg

谢谢您，并对结果表示祝贺。第一个问题是关于文斯的。文斯（Vince），您谈到了在此时间范围内进行某种投资的方式，并再次强调了医疗和工业投资。在汽车市场上，您看到那里的世俗性变化是什么，您是否仍在投资，或者您仍将继续在汽车方面进行大量投资？

文森特·罗奇（Vincent Roche）

好吧，托尔，我们实际上一直在加大对汽车的投资，特别是在信息娱乐，事物的动力方面以及车辆的电气化，电动动力总成方面。因此，就需求和供应而言，这是一个非常非常困难的市场。

我认为全球范围内的关闭对汽车业造成了极大的打击。因此，我想说的是，我们最感兴趣的两个领域是信息娱乐，汽车体验，例如利用我们的A2B技术，传统和数字信号处理以及音频信号处理，通常会增加例如主动噪声取消投资组合，我们正在部署它。

因此，我认为整个信息娱乐方面都是前进的重要组成部分，而在这里，我们拥有许多传统，实际上我们正在增加投资。我们实际上是在本季度收购了一家公司，以使我们能够在音频领域带来更多的信号处理能力。我认为，在电动汽车领域，它还有很长的路要走。作为当今的电气化，动力总成-仅占汽车总销量的一部分，当然不到汽车总销量的2％。

任重而道远。这就是我们拥有强大地位的领域。我们正在向该部门交付第四或第五代技术节点产品。因此，我想说的是，我们实际上正在增加投资。电力是另一个领域，交叉连接的电力进入了我们的业务，尤其是在欧洲和美国。这是一项重要的举措，就早期设计的生产而言，我们已经看到了一些非常好的绿芽-我们已将信号设计产品中的电源设计与之联系在一起。

我想说的很对，托尔（Tore），可能是出于安全方面的考虑，过去几年来我们一直在减少投资，部分是在MEMS上。您会记得三，四年前。我们撤回了在该领域的大部分投资。因此，我想说安全性是更多机会，信息娱乐和电力传动系统则更具战略意义。

Tore Svanberg

Prashanth，我确实很清楚现在的订单到处都是。但是，如果我们开始看到情况恶化，那么该公司的手册将如何使用，尤其是在制造业利用率清单等方面，因为您的某些同行似乎拥有不同的手册。只是想知道ADI的剧本将如何应对潜在的弱化订单或持续疲软的订单？谢谢。

Prashanth Mahendra-Rajah

Tore，让我们分两部分进行。首先，考虑一下我们如何管理成本。所以，对，在短期内，我们如何考虑成本，您已经在运营支出结果中看到了这一点。我们有一个可变的补偿结构，旨在充当减震器，并随着收入下降而逐渐消失。

在自由裁量方面，我们已经证明了。我们的旅行基本上是零。我们已经退出了顾问和任何全权委托的承包商，也许最有影响力的是我们推迟了功绩增长，这通常是2％，同比增长3％。

我们有望实现去年11月宣布的约3500万协同效应。到2021年底，我们仍然可以实现1亿美元的成本协同效应。因此，我们可以采取一些更持久的行动。过去，我们采取了诸如解雇员工直到需求恢复的方式。我们早在2008年和2009年就这样做过。我们当然会把诸如临时行动之类的活动摆在桌面上。

因此，我们将考虑所有事项。在制造业方面，我要强调的是，目前我们的利用率相当低。所以我们有点处于低谷。我们认为库存处于良好状态。因此，我认为我们没有像去年同期那样拥有相同的库存风险。

我们减少了资产负债表和渠道。因此，总的来说，我认为如果这种情况破裂，我们将处于有利地位。也许Vincent您想多谈一些长期的话题。

文森特·罗奇（Vincent Roche）

是。所以我想，托尔，我们对我们的业务的多样性和稳定性，以及我们作为一家公司产生的利润率感到满意。我们正在进行投资，以确保我们从这个低谷中脱颖而出，无论是在产品开发还是在客户参与方面，它都是一家更强大的公司。因此，我们也坚信技术的持久性和普及性。

因此，我相信，随着我们所拥有的顺风和未来的投资组合，ADI的故事变得更加强大。因此，总的来说，我们的目标是利用混乱状况。我认为Prashanth在他的准备发言中说，我们正在为最坏的情况做准备，但我们正在为未来而积极执行。

Vivek Arya

文斯，我很好奇，在短期内通讯领域会发生什么。您是否在4月或7月看到了来自中国或华为的任何程度的拉动，然后随着我们超越当前的环境，您是否看到了所有限制对华为的进一步影响，或者您认为份额将转移对华为的竞争对手吗？那么，从长远来看，您可以开始重新发展自己的通信领域吗？

文森特·罗奇（Vincent Roche）

好吧，Vivek，让我首先回答您问题的第二部分。因此，我们的覆盖面非常广泛。在全球5G的所有OEM的所有提供商中，我们都拥有非常强大的市场份额。因此，我的意思是，无论如何，都将建立网络。

无论谁建造都将要使用我们的产品，如收发器技术，微波产品组合以及许多其他辅助模拟技术。因此，我对我们所处的位置感到满意。如果份额从一种转移到另一种，我们将接手。

是的，在需求方面，我会说，我们已达成和解。因此，很明显，运营商现在对全球5G部署发表了什么看法。我们在如何平衡运输公司的需求方面进行和解-它与我们的供应紧密相关。因此，我们对承运人正在寻找的东西有很好的了解，这就是我们实质上在计划工厂装货量以支持该特定区域的方式。

因此，我认为您是不是在问我们是否正在看到双重订购等等。基站基础设施市场多年来的特点是，当一套合同即将到期时，基站基础设施市场就会出现波动。

我会说，您会看到某种程度的核心需求和内置的一定数量的冗余，但这很典型。我们目前在5G方面所看到的也没有什么不同。我们已经从动态方面看到了4G在需求方面的运作方式。

Prashanth Mahendra-Rajah

我会在电话中记得我们在公开场合对中国大客户的评价。一年前，我们谈到他们是中位数客户。从那时起，它们已被有意义地减少了。它们更多地围绕着如今较低的单位数百分比销售。而且，当我们期待第三季度及以后的时间时，我们看不到那会改变。

Vivek Arya

在毛利率上，考虑到所有的投入和使用情况，我们应该如何考虑这里的发展轨迹，我认为Prashant您提到的晶圆厂利用率不高，但是您还提到了一些成本协同效应。因此，让我们假设即使进入第4季度，销售额也保持在相似的水平，那么毛利率又能到多少呢？谢谢。

Prashanth Mahendra-Rajah

很好的问题，Vivek。因此，我们的模型是70％的长期模型，您发现在好的时候我们可以增加到72％以上，而在更具挑战性的时候（例如现在），我们处于60%的高点。因此，通过一个周期，我们平均可以达到70％。随着需求的改善，达到70％很大程度上取决于宏观因素，我们将顺势推动利用率。正如我所提到的，利用率目前已接近谷底水平。

我们所拥有的对我们有利的是额外的1亿美元的良好协同效应成本。因此，这也应该开始给我们的毛利率带来一些阻力。然后当2021年恢复到某种增长数字时，我感到-对我们来说，回到70％的水平是合理的。

Ambrish Srivastava

Prashant，我想向您提出几个快速问题，OpEx轨迹。我们应该如何考虑呢？然后在资本分配方面，假设股票回购的所有波动性暂时保持暂停，这是否公平？

Prashanth Mahendra-Rajah

因此，对于OpEx，我们已经进入了OpEx连续第六个季度的增长。其中一些-显然是积极地降低支出水平。但是其中某些原因也是这种COVID情况的结果，在这种情况下，旅行被冻结了。

我认为可以合理地预期，随着业务的重新开放和客户期望的开始改变，我们需要重新回到人们的面前，其中一些将要攀升，而其他可自由支配的支出将重新出现。所以我不会不能将这种级别的OpEx投入运行太长时间，但我想您已经看到我们在过去一年半的时间里非常努力地管理我们的OpEx，这是ADI积累的力量，我们不会放手

在如何考虑资本配置方面。我们的框架确实没有改变。首先要投资的是业务，您知道这是有机的还是无机的。然后，在偿还债务后，实际上是100％的自由现金流回报。因此，在2020年的计划中，我们将股息提高了15％。

我们仍然打算在本财年将债务减少3亿到5亿，然后再通过股息或股票回购将所有债务归还给股东。因此，如果企业坚持认为，我们将在未来几个季度重新激活股票回购。

Ross Seymore

祝贺您在充满挑战的时代取得了骄人的成绩。我只是想回到汽车方面。您说过它将急剧下降。因此，对此仅提出几个问题。您是说是逐年同比还是两者兼有，并且给出了关闭汽车工厂然后重新启动的时间。您如何看待这种复苏的形式，以及在动态方面又有多少转变在概念上影响了您对7月指南和10月展望的看法？

文森特·罗奇（Vincent Roche）

是的，谢谢你的提问，罗斯。因此，我认为最重要的是我们预计会出现连续和逐年下降。现在很难读懂汽车行业。我认为更容易预测工厂将如何重新开业以及供应将如何发生。我认为更大的问题是需求将发生什么。而且我认为我们的看法是，我们现在不了解重新开放的步伐，以及它们将以何种利用率或容量运行。

所以我想说，我们认为今年余下时间在汽车行业将很难。也许我们会在来年的上半年开始看到复苏。这就是我们查看它的方式。因此，就需求而言，我们最有信心的领域将是电动汽车，我们的产品组合取得了长足的发展，该领域最初真正地集中在中国进入欧洲，当然也包括美国。

我想说非常难懂，但我的感觉是今年余下的日子会很艰难，我们开始看到相当大的谷底，我认为21世纪上半年会有所回升。

Prashanth Mahendra-Rajah

我想说罗斯，这反映在我们的指南中。在我们的指导中，我们相对看跌汽车。

Toshiya Hari

早上好，恭喜您取得了理想的成绩。文斯，我想特别询问您的BMS业务。该季度的业务如何发展？七月份的前景如何？而且，您是否可以给我们一些关于无线BMS解决方案的新信息（下半年甚至2021年），那会有所帮助。

文森特·罗奇（Vincent Roche）

是的，整个季度刚过去，我们的BMS收入出现了适度的下降，但是我们的设计和命中率非常非常高。目前，我们在BMS中的市场份额约为40％至45％。

而且，鉴于我们拥有的设计渠道以及来自全球客户的承诺，我们相信份额将增长到50％以上。正如我在前面提到的那样。我们设法接受了以渠道为中心的BMS业务。我们一直在全球范围内推广它，这实际上是针对非无线的事情。

无线电池。我们希望看到这种特定产品的首次生产，就像我认为的2021年下半年那样。所以我们就是这样看的。我认为我们现在处于良好的位置，在北美，中国，而且我们也开始渗透到日本和欧洲，目前都处于采用的初期阶段，我们目前感到很满意。

我们的投资组合具有高度差异性。那里有很多觊觎者，但是在优化每次充电的里程时，按照该指标，我们获得了20％以上的收益。因此，总体而言，汽车行业的渗透率为1％到2％。在未来的五，十年内，这一比例可能会上升到25％，随着时间的流逝，我们处于非常有利的位置。

Chris Danely

您提到您在4月5月的预订中看到了一些不足。指南是否考虑到预订方面的进一步削弱，即您是否建立了缓冲垫，还是从现在开始一直保持稳定？

Prashanth Mahendra-Rajah

我认为我们对我们的指南感觉很好。我们不会根据我们今天不知道的事情来发布指南。五月的步伐较慢。我们在指南中的预期是，整个季度的订单将继续放缓，否则最佳情况可能会稳定下来。

积压订单的覆盖范围比平时要多。因此，我们会为一些取消和推迟做准备。我们那里总是有轮流业务。正如我提到的那样，我们要通过严格控制直接或零散客户的条款来控制这些取消或推出，并且我们还假设该渠道按顺序是相对平稳的库存水平。因此，我们认为我们已经尽最大可能对指南进行了校准。

英文原文纪要：

Analog Devices, Inc. (NASDAQ:ADI) Q2 2020 Earnings Conference Call May 20, 2020 10:00 AM ET

Company Participants

Michael Lucarelli - Director, IR

Vincent Roche - CEO

Prashanth Mahendra-Rajah - CFO

Conference Call Participants

John Pitzer - Credit Suisse

Tore Svanberg - Stifel

Vivek Arya - Bank of America Securities

Ambrish Srivastava - BMO

Ross Seymore - Deutsche Bank

Toshiya Hari - Goldman Sachs

Chris Danely - Citigroup

Operator

Good morning, and welcome to the Analog Devices [Fourth Quarter and Fiscal Year 2019] (sic) Second Quarter 2020 Earnings Conference Call, which is being audio webcast via telephone and over the web.

I'd now like to introduce your host for today's call, Mr. Michael Lucarelli, Director of Investor Relations. Sir, the floor is yours.

Michael Lucarelli

Thank you, Cheryl, and good morning, everybody. Thanks for joining our second quarter fiscal 2020 conference call. With me on the call today are ADI's CEO, Vincent Roche; and ADI's CFO, Prashanth Mahendra-Rajah. For anyone who missed the release, you can find it and relating financial schedules at investor.analog.com

Now onto the disclosures. The information we're about to discuss, includes forward-looking statements that involve risks and uncertainties. Actual results may differ materially from these forward-looking statements as a result of various factors including the uncertainty regarding the duration of COVID-19 pandemic and its impact on our business, our customers and suppliers and the global economy and also those discussed in our earnings release and our most recent 10-Q.

These forward-looking statements reflect our opinion as of the date of this call. We undertake no obligation to update these forward-looking statements in light of new information or future events. Our comments today will also include non-GAAP financial measures, which exclude special items. When comparing results to our historical performance, special items are also excluded from prior periods.

Reconciliation of these non-GAAP measures to the most directly comparable GAAP measures and additional information about our non-GAAP measures are included in today's earnings release.

And with that I'll turn it over to ADI's CEO, Vincent Roche. Vince?

Vincent Roche

Thank you, Mike, and good morning to you all from Boston.

I hope that you and your families are all staying safe and healthy during this period. First, we want to express our gratitude to the health-care workers and the many other heroes on the frontlines who are protecting the health and the well-being of our communities. Thank you also very, very much.

When we had our last earnings call in mid-February, we were just beginning to understand the depths of the COVID-19 impact in China and since then the pandemic has had a profound impact on the world putting tremendous stress on society and of course the global economy.

To counterbalance this, we've seen an unprecedented response from governments with the deployment of fiscal and monetary policies to soften the downturn and restart economic activity whenever that may be. While our sector is not immune to the turbulent operating environment it's my belief that technology will be what mollifies the current weakness and drives new demand and business models post pandemic. That's not to say that we're standing still. We've taken actions to curtail spending and reinforce our cash position. And we are learning from this challenging period and adapting quickly while still investing to ensure that we are well-positioned in the recovery and for the long term.

Our team has embraced the challenges with many of our employees working from home, but obviously not everyone can work remotely and I want to acknowledge and thank our manufacturing employees. We've continued to perform at exceptional levels and deliver for our customers.

For these employees supporting our clinical operations, we've implemented safeguards to protect them, including more PPE, increasing social distancing and enhanced sanitization. And we provided them with additional incentives and benefits to allow for continuity during this very difficult time. Our team has also done an excellent job staying close to our customers.

We moved quickly to pivot manufacturing lines and prioritize our healthcare solutions that are needed in the fight against COVID-19. This has allowed us to expedite supply used in products such as ventilators, respirators, imaging systems and patient monitors to our healthcare customers, and I'm incredibly proud of the resourcefulness and commitment that we have shown in rising to this critical challenge.

Additionally, through the ADI Foundation, we've made multi-million dollar donations to support both global and local pandemic response efforts, but our work goes beyond financial contributions.

We are also partnering with hospitals and biotech start-ups to develop solutions such as rapid point-of-care diagnostic tests and clinical grade patient monitoring that leverage our technologies.

So now I'd like to discuss the current operating environment a bit. Given the reach and depth of the current crisis, global business activity has been disrupted, and today we have seen a deterioration in demand within our automotive, broad-based industrial, and consumer businesses.

However, our business is proving more resilient than during the global financial crisis. To that end, healthcare demand is at record levels and communications demand is robust across wireless and indeed wireline sectors. We're also seeing strength in portions of our industrial instrumentation business and steadiness in our defense business.

Now this success is no accident. Through our organic investments and acquisitions of Hittite and LTC, ADI is a very different company than we were a decade ago with more diversity, a broader portfolio across High-Performance Analog, Power and RF and higher exposure to more profitable and durable end markets. So now let me move to the other side of the equation and talk a little bit about supply.

Across the world, supply chains were disrupted when many governments ordered shelter-in-place mandates and closed their borders. For ADI, capacity was reduced at our back-end test and assembly sites in mid-March across the Philippines, Malaysia, and Singapore. Once granted essential status, we acted quickly yet responsibly to ensure employee safety and improve our capacity.

And today, I'm glad to say we're operating at normal capacity levels. This demonstrates the agility of our global operations and the dedication of ADI's employees around the world. Despite the fluid and uncertain demand and supply environment, we delivered revenue of 1.32 billion and EPS of $1.08. This was in line with the original range we provided on our first quarter earnings call underscoring the resiliency and flexibility of our business model in any economic backdrop.

Now as we've mobilized to preserve ADI strength in the near-term we're capitalizing on the many opportunities we see to fortify and expand our market position for the long-term. Our team remains focused on our three strategic priorities.

So let me provide you with a brief update on each. First is the efficient use of capital. Importantly, ADI has ample financial liquidity to meet the needs of our business across critical investments, dividend payments and servicing our debt. Despite the current macro environment, we've generated $1.8 billion of free cash flow or 32% of sales over the trailing 12 months.

This continues to place ADI in the top 10% of the S&P 500. Throughout our 55-year history, we've encountered and navigated several Black Swan events successfully by taking a disciplined and balanced approach to financial management.

Specifically, the first call on our capital is funding new product development. This means investing smartly in both our people and technologies to ensure we continue to deliver disruptive innovation.

In the quarter just passed, we invested 19% of revenue in R&D, spending 95% on the most attractive opportunities across our B2B markets. We also remain committed to strong shareholder returns with our dividend as the cornerstone. In the quarter, we returned over $340 million to shareholders through dividends and share repurchases.

So let me turn to our second priority, which is about maximizing customer impact. We are continuously innovating to stay ahead of customer needs and while COVID-19 has brought new challenges it has also revealed new opportunities in a reordered world.

During the quarter, our customer engagement didn't slow down. We hosted hundreds of virtual seminars with thousands of customers in attendance, training them on new solutions and new technologies.

These interactions were very productive. We saw increased design activity on new product development across markets and customers. For example, we partnered with a key electric vehicle customer to re-imagine how audio is rendered across their fleet.

As a result of this increased and focused collaboration, we added our high performance audio digital signal processors to our A2B platform, more than doubling our content per vehicle. And in our instrumentation test business for data center compute, we continue to work with customers on reducing their system complexity and getting to market faster. Our innovative solutions combine our analog mixed-signal and power micro-module portfolios. These solutions deliver four times the channel density, while simultaneously increasing throughput. While these are just two examples, there are many more across all of our markets. It's this current flurry of design activity that positions ADI to accelerate post pandemic.

Our third priority is capitalizing on secular trends to expand our addressable markets and drive diversified growth. While every downturn has its own unique characteristics, they all seem to have one thing in common that is they drive tremendous change. Industries are prioritizing digitalization and connectivity more than ever and new industries are emerging focused on the physical and cyber.

ADI where the data is born is at the center of these exciting secular growth opportunities. And I wanted to share some thoughts with you today. As I noted earlier, our healthcare business is providing several of the technologies that are critical to the diagnosis and treatment of COVID-19. Taking a step back, ADI has been committed to this market for many years, as we anticipated the opportunity for innovation to deliver better patient outcomes.

Now this crisis will challenge us to rethink and hopefully fast track the accessibility, affordability and wellness focus of global healthcare. To achieve this, healthcare systems are going to need to be upgraded and clinical grade patient monitoring will need to be extended from the hospital right down to the patient's home.

Massive adoption of sensing, computing, and cloud capabilities is going to be required. And we believe that ADI Technologies will be at the forefront of this transformation. The communications market is moving at a rapid pace to keep up with the strains put on bandwidth and latency, as more people work remotely, transact business more digitally, and consume media from everywhere. Here ADI is playing a critical role in building out the infrastructure required from an always connected world.

Our integrated transceiver, power, and optical control portfolios are enabling customers to economically scale their investments to build the next-generation networks. We continue to innovate to meet future performance, size, and power needs positioning us to gain share to capture additional value. Another secular trend we're benefiting from is the rise of Industry 4.0. While this trend isn't so new, the pandemic is moving it to the forefront of our customers' needs.

It's clear that post-pandemic supply chains will be re-imagined and new ones will be built, ones that are more flexible, automated, and perhaps sovereign. To solve the economic burden that comes with this, customers will further automate their businesses with intelligent and connected factory floors and the increased use of robots, cobots and analytics.

This creates additional demand for our precision signal chain and power franchises and extends ADI into new areas like software IO, depth sensing, condition-based monitoring, and robust connectivity. Outside of these secular growth trends, I'm also personally inspired by the tremendous sustainability benefits that we've seen in a short amount of time.

For example, we've seen sizable decreases in carbon-dioxide, nitrous oxide, and carbon monoxide. I believe that ADI and the industry at large can and should be leveraging its creative brainpower to be better stewards of the planet.

We recently published our comprehensive corporate responsibility report entitled Engineering Good. And I can assure you, there will be more to come as I'm deeply committed to ADI's leadership here. So, in closing, the shape of the economic recovery is still very, very uncertain and dependent on many variables.

While we're confident in our outlook provided today. This unprecedented macro backdrop will continue to influence supply and demand dynamics for some time to come. We are embracing the short-term challenges and by leveraging the collective power of our talents, our technology and customer engagements, I'm very confident we will emerge stronger.

So, with that, I'd like to turn it over to Prashanth.

Prashanth Mahendra-Rajah

Thank you, Vince.

Let me add my welcome to our second quarter earnings call. As a reminder, my comments today with the exception of revenue and non-op expenses will be on an adjusted basis, which exclude special items outlined in today's press release. Back in March, we would do our guidance for the second quarter as the spread of COVID created an enormous amount of uncertainty and impacted our supply chain.

However, we acted quickly and decisively and I'm pleased to say that our second quarter results were within our original guidance with revenue of 1.32 billion, operating margin of 38%, and EPS of $1.08. Without those capacity limitations, we believe revenue would have been above our original midpoint provided at our first quarter earnings or approximately $50 million higher.

So let's get into the market results. Our B2B markets while very volatile intra-quarter due to COVID-19 performed relatively in line with our expectations. B2B revenue increased 3% sequentially. And if not for supply constraints we would have delivered on our outlook of growing mid to high single-digits sequentially.

Notably, we achieved these results, while reducing channel inventory by 60 million in the quarter. Industrial, which represented 54% of revenue during the quarter, finished up 4% sequentially, and declined 8% year-over-year. While we experienced broad-based weakness across most applications, our healthcare memory test and energy verticals all grew from the year ago period.

Communications, which accounted for 21% of revenue, finished up 15% sequentially and given the tough compare decreased 24% year-over-year with weakness across both wireless and wired. This market is and will remain lumpy, but over the long-term will be a high growth market for ADI, given our positioning in 5G and optical control systems.

Automotive, which represented 14% of revenue, down 12% sequentially and 23% year-over-year with declines across all major applications. Not surprisingly our auto business was impacted by lower vehicle sales and a global slowdown in production. As many customers were required to suspend their operations in response to COVID-19.

Lastly consumer, which represented 11% of revenue was down 14% sequentially, and 5% year-over-year, as lower consumer spending impacted both portables and prosumer. Notably, we continue to expect 2020 to be the bottom for our consumer sector.

Let's go to the P&L for the second quarter. Gross margin came in at 67.7% down both sequentially and year-over-year related to low utilizations from reduced production levels and the factory closures I mentioned earlier. As a reminder, we expect to realize 100 million of cost of goods savings exiting fiscal 2021 through the optimization of our manufacturing footprint.

OpEx was 390 million, down 5% sequentially marking the sixth consecutive quarter of declines. This was driven by a combination of the quick aggressive measures we took in response to pandemic as well as our continued focus on cost management.

Operating margin finished at 38% up over 100 basis points sequentially and down year-over-year. Non-GAAP expenses were 49 million, up sequentially, but down over 10 million compared to last year. Our tax rate for the quarter was approximately 11% and all told second quarter adjusted EPS came in at $1.08.

So now let's go to the balance sheet and cash flow. During the quarter, we proactively bolstered our strong liquidity position. We retired a $300 million bond and subsequently raised $400 million from the semiconductor industry's first ever green bond.

And as a cautionary measure, we also temporarily suspended our share repurchase program midway through the quarter. As a result, we finished the quarter with approximately 800 million of cash and about 5.6 in total debt.

Our net debt to EBITDA ratio is 1.9 times on a trailing 12 month basis. Between cash on our balance sheet and the commitments under our revolving credit facility, ADI has more than 2 billion of liquidity easily eclipsing our annual dividend payment and the debt due in January of 2021. Inventory was essentially flat from the first quarter. However, days of inventory fell to 126 from 133. Our sell-in revenue was well below our sell-through revenue at distributors.

As I mentioned, we reduced channel inventory by about 60 million in the second quarter. This brings our total channel reduction to around 100 million in the first half of fiscal 2020. Channel inventory currently sits comfortably at the low end of our seven to eight week range.

So finishing on cash flow for the quarter, cash flow from ops was 429 million and CapEx was 60 million. We expect CapEx to decline meaningfully in the second half and finished the year below our normal target range of 4% of revenue.

In the quarter, ADI paid approximately 230 million in dividends and repurchased 114 million of our stock. On a trailing 12-month basis, free cash flow finished at 1.8 billion or 32% of revenue. Over this period, we reduced debt by roughly 400 million and returned around 830 million to shareholders via dividends and an additional 500 million via repurchases.

As a reminder, our capital return policy is to return all free cash flow after debt reduction to shareholders. In fiscal 2020, we expect to reduce debt by 300 million to 500 million and return 100% of the remaining free cash flow.

Before moving to our outlook, I want to highlight what we are seeing in terms of demand and supply. As Vince mentioned earlier, our business is performing quite well under the current macro backdrop. Healthcare is very strong and we expect this strength to persist into the back half of the year.

We are seeing robust demand in communications across both wireless from 5G deployments and wireline from data center and networking upgrades. This strength is benefiting our industrial instrumentation business where we sell high performance solutions used in both memory and 5G testing.

And lastly defense is typically a steady business against all economic backdrop. All told, these markets represent almost half of ADI's revenue over the last year. From a supply standpoint, we enter our fiscal third quarter at normal capacity levels.

This is quite remarkable and I want to echo Vince's appreciation for the dedicated manufacturing teams across the world. And that brings us to our third quarter outlook. Revenue is expected to be flat sequentially at 1.32 billion plus or minus 70 million, which is a wider range than usual to account for the uncertain environment.

This outlook includes approximately 50 million of revenue that was pushed from second quarter due to capacity constraints. We are assuming no change in channel inventory in this plan. We anticipate robust sequential growth in comms, modest sequential declines in industrial and consumer, and a sharp sequential decline in automotive.

All told, B2B should increase slightly sequentially and decline just under 10% year-over-year. We anticipate op margins to be approximately 38.3 plus or minus 150 bps. We're planning for the tax rate in the quarter to be between 12% and 13% and based on these inputs adjusted EPS is expected to be a $1.08 plus or minus $0.11.

As Vince said, we are confident in our third quarter outlook, but we are mindful of the tremendous uncertainty around us. Our operating model is to plan conservatively and execute aggressively to preserve free cash flow in the near-term. At the same time, we remain focused on the long-term, continuing to invest to capture and create value across several exciting secular growth areas.

Let me pass it back to Mike now to start our Q&A.

Michael Lucarelli

Okay. Thank you, Prashanth.

Now let's get to our Q&A session. Please limit yourself to one question. After our initial response, we'll give you an opportunity for a follow-up questions. Cheryl, can we have our first question please.

Question-and-Answer Session

Operator

Our first question comes from John Pitzer from Credit Suisse. Your line is open.

John Pitzer

Yes, good morning, guys. Thanks for letting me ask the question and congratulations on the solid results, given the backdrop. Vince, I guess, the question I'm getting this morning from investors is just relative to your July quarter guidance. Most of your peers have been guiding anywhere from 10 to 15 percentage points below seasonal. You guys are guiding about five percentage points below seasonal. And I guess the question that's being asked is, to what extent are you just not being as conservative as your peers. To what extent are there some idiosyncratic drivers. Could you help us parse that out?

Vincent Roche

Yes. Thanks, John. So I think first and foremost. We've seen tremendous strength in our healthcare business over the last quarter and we expect that will also continue. And also generally speaking with virtualized commerce, work from home, we're seeing again very, very strong demand for the communications products.

The optical cable portfolios of ADI are doing particularly well and of course 5G especially in China and Asia, the 5G build-out is moving at pace. So what we're seeing, what we are predicting looking ahead is based on the order streams that we've seen and whatever - what others are predicting. We feel comfortable based on the strength in the areas I've just mentioned. Our defense business continues - continues quite strong.

Also businesses attached to let's say the build-out of data centers and cloud like advanced instrumentation test systems for memory, storage and so on and so forth are also doing particularly well.

So the overall industrial business holds in there. As Prashanth said, we probably see a modest decline, a seasonal decline in the third quarter. So overall they are the drivers. And as Prashanth said we expect a steep decline in the automotive business, but when you look at the puts and takes that's how we see the quarter shaping up.

John Pitzer

That's helpful, Vince. And then just maybe - go ahead Prashanth.

Prashanth Mahendra-Rajah

I was going to give a little bit more background on kind of the orders and outlook, which may help investors as to why our guide came in where it is. So very quickly kind of as expected Feb was weak, March came back very strong largely driven by China, but also some pretty strong demand outside from customer concerns and then it began to correct.

So April was soft, continued into May. We finished with kind of book-to-bill above 1.0 in all of our markets except auto. So as we thought about the outlook - we've built our outlook on the expectation that orders are going to continue to slow through the quarter or best case stabilize. The guide that we have out there is built on a 100% backlog coverage, which is much higher than we would normally use when we were at this point in the quarter.

We're working terms with our customers and we are enforcing them pretty stringently, so any customers or disty orders are non-cancellable within a 35-day window unless we agree to grant an exception.

So that's helping to kind of clean through the backlog and limit order cancellations. So all-in, I think, the assumptions are reasonable given the amount of uncertainty and we did put a little bit wider range on there plus or minus 70 to reflect the uncertainty.

John Pitzer

That's great color, guys. And then Vince just as my follow-up. As you mentioned in your prepared comments, the concept of Industry 4.0 has been around for a while, but it does seem like COVID has the potential of actually shining a spotlight on that in a way that we have. And I guess in my mind that probably also helps the 5G build-out because it's hard to have an intelligent factory floor without that 5G backbone, but I was hoping maybe you could help us define that market opportunity for you. When you look at sort of the intelligent factory floor, what percent of your industrial business is it today, and how should we think about potential growth rate three to five years out, if this really starts to accelerate?

Vincent Roche

Yes, it's a good question, John. I would say today what we would consider to be Industry 4.0 with a highly cloud connected industrial sector is quite small. I think today it's probably less than 10% of the total installations of factory automation and process control systems, but the intelligence we're getting from many of our customers now is that there are two things driving the need for the redeployment of industry. So it's probably three things.

One, the need for them to understand how to gather and utilize data analytics to improve the outcomes for their customers. So that assumes automatically that you deploy 5G, you deploy optical connectivity, many forms of shorter robust connectivity. I think also the - we are seeing the fragility of the supply chain globally.

And customers are telling us they're expecting to bring more machine capability into managing the supply chain. And I think thirdly is the regionalization or the [suburbanization] [ph] of supply chains and we can see the pressures there globally.

And not to mention the demographics, many of the societies that are producing lots of capital goods and consumer good outputs like Germany, China and as America begins to regionalize supply chain, we're likely to see the adoption of cobotics and more robotics technologies in general.

So I think there's a long way to go, John. We're in the early innings of the Industrial 4.0, the adoption of that.

Operator

Our next question comes from Tore Svanberg from Stifel. Your line is open.

Tore Svanberg

Thank you and congratulations on the results. First question is for Vince. Vince, you talked quite a bit about sort of investing in this time frame and you highlighted, again, medical and industrial. What about the automotive market, are you seeing sort of a secular change there, are you still investing or will you still be investing as heavily in automotive going forward.

Vincent Roche

Well, we've actually been ramping, Tore, our investments in automotive, particularly, in the infotainment, the power side of things and also the electrification of the vehicle, the electric powertrain. So right now it's a very, very hard market to read both in terms of demand and of course supply.

I think automotive has been extremely hard hit by the closures globally. So we see, I would say, the two areas of most interest to us Tore are the infotainment, the car experience, leveraging for example, our A2B technology, our heritage and digital signal processing and audio signal processing in general adding for example active noise cancellation to the portfolio and we're deploying that, starting to deploy that now.

So I think the whole Infotainment side of things is an important part of the go-ahead and that's a place where we've a lot of heritage and we're actually increasing investment. We just acquired a company actually during the quarter to enable us to bring more signal processing to the audio space. In the electric vehicle area, I think, it's got a long, long road ahead of it. As the electrification today the powertrain the - as a portion of overall car sales only about one certainly less than 2% of total car sales.

So a long, long way to go. And that's an area where we have strong position. We're on our fourth or fifth generation of technology node product delivery to that sector. So I'd say in those areas we are actually increasing investments. Power is another area, the cross-connective power into our business particularly in Europe and the US. That's an important initiative and we're seeing some very good green shoots there in terms of early stage production of designs - of power designs that we've attached to the signal processing portfolio.

I think it's also true to say, Tore, that probably on the safety side of things, we've been decreasing our investments over the last several years, partly in MEMS. You'll recall three, four years ago. We withdrew most of our investments in that area. So I would say safety is more opportunistic, infotainment and electric powertrain more strategic.

Michael Lucarelli

And, Tore, do you have follow-up?

Tore Svanberg

Yes, that was very helpful. A follow-up for Prashanth. Prashanth, I do realize obviously right now the orders are kind of all over the place. But if we start to see deterioration, what would be the company's playbook especially on things like manufacturing utilization inventory because it seems like some of your peers have different playbooks. Just wondering what ADI's playbook will be in response to potentially weaker or continuous weaker orders? Thank you.

Prashanth Mahendra-Rajah

Sure, yes. So, Tore, let's do that in two pieces. First, think about how we manage our cost. So, right, in the near-term how we think about cost and you've seen it in the OpEx results already. We have a variable comp structure that is intended to act as a shock absorber and that unwinds as revenue falls.

On the discretionary side, we've already proven hiring. We've essentially got travel at zero. We've exited consultants and any discretionary contractors and perhaps most impactful is we've deferred our merit increase, which is usually 2%, 3% year-over-year.

We are on track to realize about 35 million of synergies that we announced last year in November. And we still have $100 million of cost synergies that will come through by the end of 2021. So there are some more permanent actions that we can take. And we have taken in the past such as furloughing employees until demand returns. We did this back in 2008, 2009. We would certainly put activities like temporary actions on the table.

So there are all items that we'll think about. On the manufacturing side I would emphasize that our utilizations are fairly low right now. So we're kind of at the trough levels. Inventories are we feel at a good position. So I don't think we have kind of the same inventory exposure that we would have had at the same time last year.

We've reduced on the balance sheet as well as in the channel. So, overall, I think we're well positioned if this breaks up or should it break down. Maybe Vincent you want to talk a bit more about kind of longer term.

Vincent Roche

Yes. So I think, Tore, we feel good about the stability, the diversity and stability of our business and what the profit margins we generate as a company. We're investing to make sure we come out of this trough, a stronger company both in terms of product development as well as customer engagement. So we also believe very strongly in the persistence and the pervasiveness of our technologies.

So I believe that the story for ADI get stronger with the tailwinds that we have and the portfolio that we have for the future. So look, overall, our goal is to take advantage of the disarray. And while - I think Prashanth said in his prepared remarks we're preparing for the worst, but we're executing aggressively for the future.

Operator

And our next question comes from Vivek Arya from Bank of America Securities. Please go ahead. Your line is open.

Vivek Arya

Thanks for taking my question and congratulations on the good execution. I'm curious, Vince, what in the communications segment just near term. Did you see any level of pull-in from China or Huawei in either April our July and then as we get beyond the current environment, do you see any further impact from all the restrictions on Huawei or do you think that share will be shifted over to Huawei's competitors. So longer term you can start to regrow your communication segment?

Vincent Roche

Well, Vivek, let me answer the second part of your question first. So we have tremendous coverage. We've got very strong market share across all the providers all the OEMs of - for 5G across the globe. So irrespective, I mean, the networks are going to get built.

And whoever builds and will be using our stuff, our transceiver technologies, our microwave portfolios, many, many other ancillary analog technologies. And so I feel good about the position that we're in. If share shifts from one to the other we will pick it up.

And so the - yes in terms of demand, I would say, we have reconciled. So it's pretty clear what the carriers are saying about the deployment of 5G globally right now. Our reconciliation in terms of how we balance the demand of the carriers is with - it is very tightly tied to our supply. So we have a good sense for what the carriers are looking for and that's how we're planning essentially the factory loadings to support this particular area.

So I don't think I mean you asked about are we seeing double ordering and so on and so forth. What is characteristic in the base station infrastructure market over many, many years is that get gyrations when a set of contracts are coming due.

You see some level of, I would say, core need and a certain amount of redundancy built in, but it's pretty typical. What we're seeing right now in terms of 5G is no different. What we've seen in terms of the dynamics how 4G operated in terms of demand.

Prashanth Mahendra-Rajah

I'll remember on the call, what we said publicly about that large customer in China. A year ago we talked about them being a mid single-digit customer. They've been reduced meaningfully since that time. They're more around the low single-digit percent of sales today. And as we look forward to our third quarter and beyond, we don't see that changing from there. Do you have a follow-up?

Vivek Arya

Yes. Very helpful. Thank you. On gross margins, how should we think about the trajectory from here given all the puts and takes of mix and I think Prashant you mentioned fab under-utilization, but then you also mentioned some of the cost synergies. So let's assume sales stay at similar levels even going into your Q4 what can gross margins do then? Thank you.

Prashanth Mahendra-Rajah

Sure. Yes, good question, Vivek. So our model is 70% long-term and you saw that in good times we can get upto 72% plus and in more challenging times like now we're sort of in the high '60s. So through and through a cycle, we can average 70%. Getting to 70% is very macro dependent as demand gets better, we are going to get utilization tailwind. We have, as I mentioned, utilizations are near trough levels now.

We have - what we have in our favor is an additional 100 million of costs of good synergies. So that should begin to give some tailwind as well to our gross margins. And then as 2021 returned to kind of growth numbers then I feel that - it's reasonable for us to kind of get back to that 70% level.

Michael Lucarelli

Cheryl on the call - on the interest of time, we're going to go to one question per caller to get through a bit more.

Operator

And our next question comes from Ambrish Srivastava from BMO. Please go ahead. Your line is open.

Ambrish Srivastava

Prashant, I had a question for you on a couple of quick ones, OpEx trajectory. How should we be thinking about it? And then on capital allocation, is it fair to assume that given all the volatility that share buybacks stays paused for now?

Prashanth Mahendra-Rajah

So for OpEx we are in our sixth quarter of consecutive improvement in OpEx. Some of that was - is clearly actively managing the spend levels down. But some of it is also the result of this COVID situation where travel is at a freeze.

I think it's reasonable to expect that as businesses reopen and customer expectations start to change and we need to get back in front of folks that some of that is going to climb and as well as some other discretionary spend will come back in. So I wouldn't run this level of OpEx out too long, but I think you've seen that we have been incredibly diligent with managing our OpEx over the last year and a half and that's a muscle that ADI has built and we're not going to let that go.

In terms of how to think about the capital allocation. Our framework really hasn't changed. The first call is to invest in the business and you know whether that is organic or inorganic. And then after that it's really 100% return of free cash flow after debt repayments. So the plan for 2020, we increased the dividend by 15%.

We're still intending to reduce debt by 300 million to 500 million in this fiscal year and then everything after that goes back to shareholders either through dividend or share repo. So I would expect that we would be - if the business holds out that we would be reactivating the share repo in the coming quarters.

Michael Lucarelli

We'll go to our next caller please.

Operator

Our next question comes from Ross Seymore from Deutsche Bank. Your line is open.

Ross Seymore

Congrats on the strong results in challenging times. I just wanted to go back to the automotive side. You said it would be down sharply. So just a couple of questions on that. Do you mean sequentially year-over-year or both and given the timing of when the auto factories have been shut down and then are turning back on. How are you viewing the shape of that recovery and how much of that turning back on dynamic influences your thoughts for both your July guide and your October outlook conceptually?

Vincent Roche

Yes, thanks for the question, Ross. So I think first and foremost we expect sequential and annual declines. It is extremely hard to read the automotive sector right now. I think it's easier to predict how factories will reopen and how supply will happen. I think the bigger question is what is going to happen with demand. And I think the way we view it is that we don't understand the pace of reopenings right now and at what level of utilization or capacity will they operate.

So I would say we think it will be tough going for the remainder of this year in automotive. And perhaps we'll start to see a recovery in the first half of the coming year. So that's how we're viewing it. So the area that we feel kind of most conviction around in terms of demand will be for electric vehicles where our portfolio is making very strong headway, which was originally centered really in China into Europe and of course America as well.

So very, very hard to read, I would say, but my sense is that remainder of this year will be tough and we start to see off a pretty poultry bottom I think some recovery in the first half of '21.

Prashanth Mahendra-Rajah

And Ross, I would say, that is reflected in our guide. We're relatively bearish on automotive in our guidance.

Michael Lucarelli

Cheryl, we'll have our next question.

Operator

Our next question comes from Toshiya Hari from Goldman Sachs. Your line is open.

Toshiya Hari

Good morning and congrats on the strong results. Vince, I wanted to ask about your BMS business specifically. How did that business trend in the quarter? What's the outlook into July? And if you can give us an update on customer traction with your wireless BMS solution into the back half of the year and potentially into fiscal year 2021, that would be helpful? Thank you.

Vincent Roche

Yes, so overall in the quarter just gone, we saw a modest decline, I would say, in our BMS revenues, but our design and hit rates are very, very strong. We're set to - at the present time we have somewhere in the region of 40% to 45% market share in BMS.

And we believe that share will grow above 50% given the design pipeline that we have and the commitments that we have from customers across the globe. As I mentioned in the previous - the previous answer there. We managed to take what was a very channel-centric BMS business. We've been taking it across the globe and that's for essentially the non-wireless set of things.

The wireless battery. We are expecting to see our first production of that particular product happen in the kind of I think the second half of 2021. So that's how we see it. We are in a great position I think right now in North America, China and we're also beginning to penetrate Japan and Europe, I think, is in the early stages of adoption at any kind of meaningful level and I feel good about where we are there.

So and our portfolio is highly differentiated. There are many pretenders out there, but when it comes to optimizing the miles per charge we got more than 20% gain in that - along that metric. So overall it's a 1% to 2% penetration of the car sector. It will probably go to 25% over the next five, 10 years and we're in a very, very good position to see the tailwinds from that as time plays out here.

Michael Lucarelli

Thank you, Toshiya. We'll go to our last question, please.

Operator

And our last question comes from Chris Danely from Citigroup. Please go ahead. Your line is open.

Chris Danely

I guess more of a clarification and a question. So you mentioned that you've seen a little bit of weakness in the April May bookings. Does the guide take into account further weakening in the bookings i.e. did you build any cushion or are you assuming stability from here on out?

Prashanth Mahendra-Rajah

Yes, so I think we feel good about our guide, Chris. We don't put a guide out there that we don't think we can based on what we know today we can get to orders were down in April. May was at a slower pace. Our expectation in the guide is that orders continue to slow through the quarter or best case might stabilize.

We've got good coverage from the backlog more than we normally do. So we're prepared for some cancellations or push outs because we would have. We always have some turns business in there. We're trying to control those cancellations or push outs, as I mentioned, by being be pretty tough on the terms that we have for direct or disty customers and we've also assumed that the channel is relatively flat inventory levels sequentially. So we think we've calibrated the guide as best as we can knowing what we know today.

Operator

Thank you. And I'll turn the call back for closing comments.

Michael Lucarelli

Thanks, everyone for joining us this morning. A copy of the transcript will be available on our website investor.analog.com and you also find our recently published ESG report, engineering good there as well. Thanks again for joining us and your continued interest in Analog Devices. Stay healthy.

Operator

This concludes today's Analog Devices conference call. You may now disconnect.