The operator introduces the Analog Devices Fourth Quarter Fiscal Year 2023 Earnings Conference Call, with Michael Lucarelli as the host. ADI's CEO and Interim CFO are also present. Forward-looking statements and non-GAAP measures will be discussed. There have been slight changes in end market mix.

ADI's CEO and Chair, Vincent Roche, discusses the company's financial performance in the fourth quarter of 2023, highlighting double-digit growth in the automotive sector and careful expense management. The company also achieved record revenue and EPS for the fiscal year, returning a record amount to shareholders and reducing share count. Looking to fiscal 2024, the company expects the inventory correction and uncertain market conditions to continue in the first half of the year, but remains confident in their business model's ability to limit volatility and maintain profitability.

The company has taken steps to ensure strong financial performance despite a decline in revenue and is continuing to make strategic investments for future growth. Customers are optimistic about the potential of the intelligent edge and ADI's role in their success. The company's design win pipeline and Maxim revenue synergies pipeline are both growing, and they expect to achieve $1 billion in revenue synergy by 2027. The company has had recent wins in the industrial automation sector, leveraging their position in software configurable I/O to provide additional solutions in power, isolation, and connectivity.

ADI has had success in capturing design wins in the industrial instrumentation and automotive industries. They have improved their solutions to increase density and reduce energy consumption, making them ideal for testing high-performance compute GPUs and high-bandwidth memory. In the automotive industry, ADI's wireless battery management system is gaining momentum and has secured its fifth customer. They have also won next-generation power for ADAS systems at four top suppliers. ADI's GMSL connectivity portfolio is experiencing strong growth and has been awarded new wins across multiple regions. Additionally, their cloud infrastructure business is benefiting from the increasing demand for power and connectivity in AI and ML systems.

The company has seen success in various industries, including winning contracts with a major hyperscaler, upgrading systems to support high data generation, securing power management sockets in portable applications, and strengthening their healthcare technology with a design win for a continuous glucose monitoring customer. The company's business model and investments in technology and customer engagement have contributed to their record revenue and earnings. Jim, who has extensive experience in various financial leadership roles within the company, has joined the leadership team.

ADI had a successful fiscal year with record revenue and EPS. Fourth quarter revenue declined but still exceeded expectations. Industrial and Automotive segments achieved record results, while Communications and Consumer segments saw declines due to inventory adjustments and weaker demand.

The company's fourth quarter gross margin decreased due to unfavorable product mix, lower factory utilization, and lower revenue. Operating expenses were reduced through expense management and lower variable compensation, resulting in a higher operating margin. The company ended the quarter with $1 billion in cash and a net leverage ratio of 0.9x. Inventory decreased and cash flow was positive. The company returned 130% of free cash flow through share repurchases and dividends. For the first quarter, revenue is expected to be $2.5 billion with a higher sell-through than sell-in, and all end markets are expected to decline sequentially. Industrial is expected to see the biggest decline, followed by Consumer and Comms, with Automotive performing the best.

The company expects a 41.5% operating margin and adjusted EPS of $1.70 plus or minus $0.10. The current operating backdrop is weak, but lead times are back to normal levels and cancellations have fallen. The company is taking actions to reduce inventory and preserve its income statement, balance sheet, and cash flow. They will be lowering internal utilizations and slowing the expansion of their facilities, resulting in a reduction in 2024 CapEx. These actions will not compromise long-term growth and resiliency efforts. Lastly, the company has taken steps to structurally reduce OpEx.

In the ninth paragraph of the article, the speaker discusses the actions taken to address lower variable compensation and seasonal spending in the first quarter, resulting in a slight decline in operating expenses. They also mention the company's ability to generate operating margins in the low 40s, demonstrating the durability of the franchise and the enhancement of their operating model over time. The speaker then opens up for Q&A, with the first question asking about the bottoming process and metrics being followed for cancellations, pushouts, and backlog. The speaker also addresses the impact of the cyclical downturn on the automotive and industrial sectors.

The company has observed a decrease in inventory and cancellations, leading to a slight improvement in bookings. However, there may still be some challenges in the first half of the fiscal year, potentially affecting the upcoming April quarter. The company is not providing specific guidance for April but acknowledges that it may not be a typical seasonal quarter.

The speaker is responding to a question about the impact of an extra week in January on April's performance. They mention that they expect the inventory overhang to be depleted by May of next year, but are also concerned about the decline of semi business in China. They also mention that lead times have improved and order rates have stabilized in the fourth quarter.

The speaker discusses the low cancellation rates and cautious shipping into the channel. They also mention that all markets in 1Q will be down on a quarter-to-quarter basis. They address confusion about the 13 to 14-week card and mention that they expect 1Q to 2Q to be flat or slightly down. The speaker then moves on to addressing a question about pricing, stating that their existing portfolio's pricing is resilient and stable.

The speaker discusses the company's ability to capture more value with each new generation of products and their focus on high-end performance to maintain a competitive edge. They also mention their confidence in holding prices and their bullish outlook on the pricing environment. In regards to OpEx and gross margins, they mention a slight decrease in OpEx despite the extra week in the quarter and suggest a steady-state OpEx run rate of around 640 once the extra week rolls off in Q2. They do not mention any other drivers for OpEx.

The gross margins for the first quarter are expected to be below 70%, with revenue and mix being the main factors contributing to this decrease. On the other hand, operating expenses are expected to decrease by 1-2% due to cost-cutting measures and lower seasonal spending.

The company does not provide guidance for the second quarter, but expects operating expenses to decrease compared to the fourth quarter of the previous year. The decline in revenue for the industrial sector has been worse than the overall company due to weaker momentum and a slowdown in orders. The company expects the industrial sector to continue to struggle in the first half of the year due to a weaker macro backdrop and inventory digestion. This may impact gross margins.

In the paragraph, the speaker discusses projections for gross margin, inventory reduction, and utilization levels for the company in the upcoming quarter. They also mention activating their hybrid manufacturing strategy to moderate factory load and provide a cushion for gross margin. A question is asked about CapEx.

The speaker discusses the company's reduced CapEx for the year and how it will still be able to meet its capacity goals through partnerships and the ability to swing 70% of its product portfolio from internal to external fabs. They also mention that they are comfortable with the current demand outlook and do not need all of the planned capacity in the short-term.

The company's strategy of dual sourcing benefits customers by providing them with multiple options and creating a resilient supply chain. This also allows the company to moderate their factories and maintain gross margins. Most of the company's revenue is produced on older process technologies, but they have invested in internal fabs for flexibility and agility. For newer process technologies, the company relies on external partners for production.

Timothy Arcuri from UBS asked a question about the company's plans for inventory reduction. Jim Mollica responded that they plan to bring it down by $200 million over the next three quarters, with the majority of the reduction in finished goods. He also mentioned that their sell-in to the channel is lower than their sell-through, with a difference of $50 million in the fourth quarter. Vincent Roche added that their pre-COVID target for inventory days was 120, but they will update this in the future.

The transcript of the conference call will be posted on the company's website. The speaker thanks the participants for joining and wishes them a happy Thanksgiving. The operator announces the end of the call.

This summary was generated with AI and may contain some inaccuracies.