Analog Devices (ADI) Q2 2026 Earnings Transcript

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DATE

Wednesday, May 20, 2026 at 10 a.m. ET

CALL PARTICIPANTS

• President and Chief Executive Officer — Vincent T. Roche
• Chief Financial Officer — Richard C. Puccio Jr.
• Director of Investor Relations — Jeff Ambrosi

TAKEAWAYS

• Revenue -- $3.62 billion, up 15% sequentially and 37% year over year, above the high end of guidance.
• Industrial Segment Revenue -- Represented 50% of total revenue, increasing 20% sequentially and 56% year over year, led by aerospace and defense, automated test equipment (ATE), electronic test and measurement (ETM), and broad market.
• Automotive Segment Revenue -- Accounted for 24% of revenue, up 8% sequentially and 2% year over year, with double-digit BMS growth and notable demand for ADAS, GMSL, and infotainment systems.
• Communications Segment Revenue -- Comprised 15% of revenue, increasing 22% sequentially and 79% year over year, with data center business (over 75% of communications) growing more than 90% year over year.
• Consumer Segment Revenue -- Made up 11% of revenue, flat sequentially and up 23% year over year, with continued cyclical tailwinds in the high-end prosumer market.
• Gross Margin -- 73%, up 180 basis points sequentially and 360 basis points year over year, attributed to favorable mix, higher utilization, and pricing.
• Operating Margin -- 49%, up 350 basis points sequentially and 780 basis points year over year, exceeding prior guidance.
• EPS -- $3.09, up 26% sequentially and 67% year over year, reaching a record high.
• Free Cash Flow -- $4.6 billion over the trailing 12 months, representing 36% of revenue.
• Shareholder Returns -- $5 billion returned through dividends and share repurchases over the trailing 12 months.
• Inventory -- Increased $81 million sequentially; channel inventory weeks declined but remained within the 6%-7% range.
• Third Quarter 2026 Outlook -- Revenue projected at $3.09 billion, plus or minus $100 million; operating margin midpoint expected at 49%; tax rate anticipated at 12%-14%; adjusted EPS forecasted at $3.03, plus or minus $0.15.
• Planned Empower Semiconductor Acquisition -- Provides proprietary integrated voltage regulator and silicon capacitor technology, targeting enhanced power density and efficiency for data center and AI markets.
• Internal Capacity -- Management confirmed internal capacity has more than doubled compared to pre-COVID levels, supporting a $20 billion revenue target by 2030.
• Pricing -- Management stated current year pricing actions are designed to offset inflationary costs, with longer-term gains driven by high average selling price innovations and minimal competitive substitution post-design-in.
• Health Care Segment -- Achieved double-digit revenue growth, with management citing "continued growth over the coming years" due to increasing design-ins with larger OEMs.

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RISKS

• CEO Vincent T. Roche cautioned, "There is concern that, you know, at the steepness of the demand ramp across the industry and what that will mean, say, going into 2027." This underscores potential supply chain stress if demand continues accelerating.
• Chief Financial Officer Richard C. Puccio Jr. noted, "Consumer is expected to be down single digits sequentially for us based on some of the things I just described," highlighting near-term weakness in the consumer market guidance.
• Management cited increasing tightness in specific semiconductor nodes, though confirmed, "we have not yet been unable to get the capacity we have needed." Persistent tightness could impact future supply availability.

SUMMARY

Analog Devices (NASDAQ:ADI) posted record quarterly revenue, earnings, and margins, with sequential and annual growth across all core operating segments. Data center and communications revenue accelerated sharply, powered equally by optical and power portfolios, while automotive and industrial markets reached all-time highs driven by content gains and elevated regional demand. Management articulated a positive multiyear outlook for industrial, data center, and health care verticals, attributing growth potential to secular trends, supply chain agility, and a robust innovation pipeline. Channel inventory weeks remained within the targeted range, with the CFO signaling continued constructive demand, particularly in automotive, data center, and industrial, despite macro and geopolitical uncertainties.

• Management projected above-seasonal growth in industrial, automotive, and communications for the coming quarter, with consumer expected to contract modestly.
• Gross margin guidance for next quarter assumes a 50 basis point reduction, mainly due to one-time prior period benefits, with operating margin maintained at 49% under midline assumptions.
• The Empower Semiconductor acquisition targets integration of advanced power regulation and capacitor technology, with initial revenue expected in late 2026 and significant expansion in AI accelerators anticipated by 2027.
• Management stated internally that flexible manufacturing investments now provide capacity upside, with a declared ability to service up to $20 billion in annual revenue.
• Management’s pricing strategy reflected both short-term inflation pass-through and long-term resilience due to high product stickiness and minimal competitive substitution post-design-in.

INDUSTRY GLOSSARY

• GMSL (Gigabit Multimedia Serial Link): A high-speed data transmission standard widely used for automotive video, data, and control connectivity, supporting ADAS and infotainment systems.
• ATE (Automated Test Equipment): Systems used for testing and validating the performance of semiconductor devices during manufacturing.
• ETM (Electronic Test & Measurement): Solutions and instruments used in research, development, and production validation for electronic systems and devices.
• BMS (Battery Management System): Technology platform for monitoring and managing battery packs, especially in EVs and energy storage applications.
• IVR (Integrated Voltage Regulator): On-chip or tightly integrated power management technology that regulates voltages close to high-performance processors, enabling improved efficiency and response for demanding AI workloads.
• A2B (Automotive Audio Bus): A digital audio bus technology that enables simplified, high-bandwidth audio and control data connections within automotive systems.

Full Conference Call Transcript

Vincent T. Roche: Thanks very much, Jeff, and a very good morning to you all. Well, as you have seen by now, second quarter revenue profitability and earnings per share finished above the high end of our guidance, establishing new high watermarks for both revenue and for earnings. Despite the quarter's heightened geopolitical tensions and ongoing macroeconomic challenges, we are currently seeing record demand for our products and solutions. it is at times like these when our dynamic hybrid manufacturing model performs. Our robust investments over recent years, have enhanced the scale and optionality of our supply chain, enabling ADI to address demand surges and capture upside.

The combination of this supply agility and resilience and our robust R&D investments across core analog segments as well as digital software and AI form the foundation for our growing criticality to our customers. They also enable us to pursue areas that we believe offer the greatest future growth potential for ADI, namelyAI-driven computing and connectivity. Autonomy, proactive health care, sustainable energy transition, and immersive consumer experience. As I mentioned last quarter, our data center and ATE businesses are taking advantage of strongAI-driven infrastructure investments. To achieve new highs. These 2 businesses are on steep growth trajectories, And as we move through 2026, our confidence in their continued growth into 2027 is increasing.

Another robust growth market for ADI is our aerospace and defense business, which reached a new revenue high this quarter, and where increased focus on national sovereignty concerns is accelerating an already strong multiyear growth path. In general, industrial, which includes ATE as well as aerospace and defense, is our most profitable business with 15 to 20 year average product life cycles. We continue to outperform in this space, So today, I would like to unpack more of that story for you by focusing on our industrial business beyond ATE and aerospace and defense, namely automation, electronic test and measurement, sustainable energy, health care, and the broad market. Collectively, these markets have grown more than 40% in 2026.

Customers across these sectors are consuming more semiconductors with each new product generation. And from a cyclical perspective, these businesses are still well below their prior cycle highs with lean channel inventories. This combination of secular and cyclical positioning along with strong demand signals, gives us confidence that all of our industrial sectors are poised for continued strong growth in the coming quarters and indeed over the longer term. So now going a little deeper into these markets, I will begin with our automation business. Numerous megatrends, including the onshoring of advanced manufacturing and evolving labor dynamics, our increasing demand for digital factories and next generation robots.

The digital factory vision is unlocking new opportunities for ADI, and our portfolio of high performance sensing, signal chain, power management, and connectivity solutions We are enabling the edge intelligence and real time communication necessary in automated semiconductor fabs, biopharma, data centers, and other discrete and process manufacturing environments, for example. Additionally, as robots make up ever larger percentages of investments in factories and elsewhere, our higher value products and subsystems for content rich robotics are aiding automation's fast recovery. Longer term, humanoids and other advanced robotics modalities are steadily increasing our opportunity pipeline value. Overall, we believe we are well positioned to continue capitalizing on automation's tailwinds today and in the future as automation transitions to autonomy.

Turning now to our electronic test and measurement or ETM business. While ATE systems are geared to enable efficient, high volume manufacturing of chips, electronic systems, ETM supports end to end product development and delivery. R&D, prototyping, debugging, and validation, all the way through mass production, in areas such as AI, EVs, and secure communications, for example. ETM is a highly diversified performance driven market. And ADI's innovative RF mixed signal and power solutions have built our strong position in high value applications, and are propelling our growth in our design pipeline as customers grapple with increasing levels of complexity and shrinking innovation cycles. Switching now to our energy business.

The continued evolution of consumption patterns, due to deeper electrification and high performance computing, for example, is putting immense pressure on legacy electrical grids. And creating profound challenges from energy generation to transmission, distribution, storage, and, of course, consumption. Customers trust ADI to accurately monitor, meter, and manage all levels of the grid. We reliably convert real world environmental and system data into digital information delivering the essential edge intelligence, connectivity, and power management solutions today's systems require. Notably, we are also leveraging our high performance battery management platform to support the energy storage systems that are increasingly key to a stable grid.

Demand for our BMS portfolio from our ESS customers continues to be strong in 26, having grown more than 50% in fiscal 25. In short, our technology helps customers upgrade electrical infrastructure ingest and manage the intermittency of renewable resources, and smooth the energy demand spikes from applications like EVs, AI, and so on and so forth. As the trend of electrification accelerates, and demand patterns continue to evolve, we believe energy will continue its growth trajectory for many, many years to come. Turning next to health care. Where technologies and solutions that protect and save lives across both clinical and nonclinical care settings each and every day.

We are enabling the ongoing digitalization of clinical environments through the combination of our deep domain expertise and breadth of technological capabilities across hardware, software, and advanced packaging. We are seeing secular growth in, for example, advanced imaging, patient monitoring, and surgical robotic applications, where our high performance driven solutions are further extending our leadership position. And as healthcare increasingly migrates beyond clinical, to nonclinical environments, demand is accelerating for our wearable solutions for outpatient management of, for example, cardiopulmonary and metabolic conditions, essentially extending the digital network edge all the way to the surface of the human body.

We are driving double digit revenue growth in our health care market, and we expect continued growth over the coming years due to increasing design ins with larger OEMs this year. Turning finally to our broad market, industrial business, which has returned to robust growth. This market encompasses a long tail of tens of thousands of established and emerging companies who are addressing a vast array of applications. The tremendous breadth of these customers' needs aligns perfectly with the extensive scope of our diversified performance leading technologies and application ready solutions. Spanning sensor to cloud, nanowatts to kilowatts, and antenna to bits.

Now before I conclude my remarks today, let me speak briefly about our planned acquisition of Empower Semiconductor, which will further augment our power technology portfolio and provide the final piece of our comprehensive grid to core power platform. With mpower, we gain cutting edge proprietary integrated voltage regulator or IVR technology, and silicon capacitors that enable us to offer true vertical power delivery to our customers. The extreme power density of Empower's platforms eliminates customers' needs for bulky external components, shrinks their power footprint by up to 4x, slashes their data center compute power consumption by an estimated 10% to 15% and delivers the ultrafast transient response required by volatile AI workloads.

This transaction will expand ADI's total addressable market within the hyper growth AI accelerator space and further solidify our position. As an indispensable hardware partner in the drive for maximum compute density per server rack. And we look forward to sharing more of our vision in this exciting space when the transaction closes a little later following regulatory approval. So in closing, we believe our industrial end market is currently in a cycle of broad based high growth that has been further compounded by our strong investments in the most attractive secular opportunities. As ADI works to bring physical intelligence to the electrophysical interface, our competitive advantage lies in our extensive and evolving tech stack.

And 6 decades of experience as well as our deep application domain expertise. These differentiators continue to grow in importance as our customers tackle bigger more complex challenges at the intelligent edge. And as such, our confidence in our future has never been greater. And with that, I will pass you over to Richard.

Richard C. Puccio Jr.: Thank you, Vincent, and let me add my welcome to our second quarter earnings call. Revenue in the second quarter was a record $3.62 billion finishing above the high end of our outlook while growing 15% sequentially and 37% year over year. Growth was led by our industrial and data center businesses. Industrial, which represented 50% of our second quarter revenue, finished up 20% sequentially and 56% year over year. All of our industrial businesses increased sequentially and year over year, led by aerospace and defense, ATE, ETM, and the broad market. Automotive represented 24% of revenue finishing up 8% sequentially and 2% year over year.

We continue to capitalize globally on content and share gains in next generation ADAS and infotainment systems, increased demand for our GMSL, functionally safe power, and A2B technologies. In addition, our BMS solutions for EVs returned to year over year growth for the first time in 2 years. Communications represented 15% of revenue, finishing up 22% sequentially and 79% year over year. Data center, which now accounts for more than 75% of our communications revenue, was up more than 90% year over year driven by both our optical and power portfolios. In our wireless business, we continue to see increasing demand growing more than 35% year over year.

Lastly, consumer represented 11% of quarterly revenue, flat sequentially and up 23% year over year. Continued strong growth reflects our exposure to the high end consumer space and ongoing cyclical tailwinds in our B2B-like prosumer business. Now on to the rest of the P and L. Second quarter gross margin was 73%. Up 180 basis points sequentially and 360 basis points year over year, driven by favorable mix, higher utilization, and price. OpEx in the quarter was $872 million resulting in an operating margin above the high end of our guidance or 49%. Up 350 basis points sequentially and 780 basis points year over year. Non operating expenses were $57 million and tax rate for the quarter was 11.8%.

All told, EPS was a record $3.09 up 26% sequentially and 67% year over year. Now I would like to highlight a few items from our balance sheet and cash flow statements. Cash and short term investments finished the quarter at $3.4 billion and our net leverage ratio remains 0.8. Inventory increased $81 million sequentially as we continue to build strategic die bank and finished goods buffers to support growing demand. Days of inventory finished at 168, while channel inventory weeks declined, remaining within our 6 to 7 week range. Over the trailing 12 months, operating cash flow and CapEx were $5.1 billion and $500 million respectively.

We continue to expect fiscal 2026 CapEx to be within our long term model of 4% to 6% of revenue. Free cash flow over the trailing 12 months was $4.6 billion or 36% of revenue, Over the same period, we returned $5 billion to shareholders through dividends and share repurchases. This robust cash return reflects the strength of our innovation driven financial model, and our continued commitment to our disciplined capital allocation. As a reminder, We target 100% free cash flow return over the long term using 40% to 60% for our dividend and the remainder for share count reduction. Now moving on to our third quarter outlook.

Revenue is expected to be $3.09 billion plus or minus $100 million Operating margin at the midpoint is expected to be 49% plus or minus 100 basis points. Our tax rate is expected to be 12% to 14%. And based on these inputs, adjusted EPS is expected to be $3.03 plus or minus $0.15. In closing, we delivered a strong quarter supported by disciplined execution, and broad based demand across all of our end markets. We continue to see constructive demand signals in our order book and backlog particularly in industrial, AI related applications, and automotive.

While we remain mindful of the dynamic macro and geopolitical environment, we believe we are well positioned to continue executing against both cyclical and secular opportunities. With that, I will give it back to Jeff for Q&A.

Jeff Ambrosi: Thank you, Richard. Now let's get to our Q and A session. We ask that you limit yourself to 1 question in order to allow for additional participants on the call this morning. You have a follow-up, please re-queue and we will take your question if time allows. And with that, operator, can we please have our first question?

Operator: For those participating by telephone dial in, if you have a question, please press *11 on your tone telephone to enter the queue. If your question has been answered or you wish to remove yourself from the queue, simply press *11 again. If you are listening on a speaker phone, please pick up the handset when asking your question. We will pause for just a moment, And our first question for today comes from the line of Tore Svanberg from Stifel Nicolaus. Your question please.

Analyst (Tore Svanberg): Thank you, and congratulations on the record results. Vincent, I was hoping you could talk a little bit about the conversations that you are having with your customers Seems like demand is very, very strong. I am sure supply and capacity is becoming increasingly a concern for your customers. But how are they basically approaching your business at this point? Are they worried about supply? Are they giving you more visibility as far as build plans? Any color there would be great. Thank you.

Vincent T. Roche: Yeah. Thanks, Tore. So yeah, I think generally speaking, I would say the atmosphere is 1 of general calmness, with our customers. There are some concerns, of course, around the choke points in the semiconductor supply chain, you know, memory being 1 of those. So, you know, that is, I think, having the most effect on consumer customers who have got to make choices. But I think generally speaking, you know, our lead times are in pretty good shape. Our demand book, you know, is increasing.

But we have a lot more capacity as well than we had, say, pre-COVID. we have more than doubled the internal capacity, and we have a lot more optionality built in as well to the external supply sources of process technologies that we are not building inside the company. So I think it is a reasonably calm environment. There is concern that, you know, at the steepness of the demand ramp across the industry and what that will mean, say, going into 2027. But you know, we have a lot of flexibility and resiliency built into our particular supply chain.

So we have a lot more upside that we can take onto our order books and keep a very good service score with our customers. And, you know, there are places, Tore, where you know, we are seeing you know, more a little more stress than others. But generally speaking, I think we are we are in good shape.

Analyst (Tore Svanberg): Perfect. Thanks.

Jeff Ambrosi: Thanks, Tore.

Operator: We will take our next question, please. Certainly. And our next question comes from the line of Vivek Arya from Bank of America Securities. Your question please.

Analyst (Vivek Arya): Thanks for taking my question. Vincent, I am curious how you are approaching price pricing both from a kind of tactical and strategic perspective. So on the tactical side, what are you assuming in terms of, pricing for your current quarter outlook and just the second half? In general. And we have heard several of your competitors just starting to send letters on increasing pricing So how are you viewing pricing in the near term? And then longer term, how sustainable will these pricing moves be? And do you think some of your competitors who have internal capacity, can they use, this inflationary environment to take shares?

So just would love your perspective on both the kind of tactical and then the longer term aspect of it. Thank you.

Vincent T. Roche: Yeah. Thank you. So, I think let me start with the short term. We have increased price during the course of this year, and essentially, what we are trying to do is just absorb the cost of inflation in our business, And, you know, that is something that we will address We will keep an eye on the inflationary effect at the inputs to our business, and you know, we will offset those costs as necessary. So I think in terms of the longer term, you know, we, as a company, we have got the highest ASP by far in the industry across the entire portfolio. We are at 4x, 5x the industry average.

And with each new generation of innovation that we are bringing to market, we capture we capture more value. So, actually, in the newer parts of our the newer products in our portfolio, those products are capturing more and more value, and that is reflected in the ASPs. And you know, what is the stickiness, I think, was the other part of your question. The answer, very simply, is very sticky because our products have very long life cycles, and the most competitive part of the cycle for ADI is capturing the initial design in. When we get that design substitution is effectively zero. Competitive substitution is effectively zero.

So with a long product life cycle portfolio, you know, I think we are we are in a strong position to hold the gains we make. Thank you, Richard, did you want to add? Hey, Vivek.

Richard C. Puccio Jr.: I would just add because I think the 1 question you asked was I said, look, Tactical pricing piece, which we talked about in the last quarter, actually came through as expected in the results. So everything that was above the high you know, above the midpoint of our guide was actually due to volume, not incremental price. So the pricing played out as we expected. And if you think about, you know, a full year look of 2026, the pricing actions that we have previously described will add you know, a couple points to our growth rate in 2026. Thank you.

Operator: Thanks. We will take our next question, please. Certainly. And our next question comes from the line of Joe Moore from Morgan Stanley. Your question, The 90% growth that you talked about in the data center portion of communications can you kind of update us on growth trends within both the optical power side of that?

Analyst (Joe Moore): And just how should we think about growth there going forward if you are doing tuck in acquisitions that can expand the TAM on the power side? Thank you. Sure.

Richard C. Puccio Jr.: So, Joe, I will take that 1. So on the on as I mentioned, with the data center piece being 75% of our comms, and the 90% growth, actually, that is being fueled pretty much equally by similar growth rates across both the power and optical portfolios. So those are both continuing to trend very well with strong orders and strong results in the quarter. You know, and given the momentum we are seeing, we really do expect this to continue to increase and be the fastest growing sequentially for us as we look out into the next quarter.

Operator: Thanks, Joe.

Analyst (Joe Moore): Thank you, Joe.

Operator: We will take our next question, please. Certainly. And our next question comes from the line of Joshua Buchalter from TD Cowen. Your question please.

Analyst (Joshua Buchalter): Hey, guys. Thanks for taking my questions and congrats on the results. Maybe following up a little bit on Vivek's. Could you walk through what is implied for gross margins in the fiscal third quarter? Maybe like help us understand the levers across pricing mix and utilization. I know there is a 50 basis points of inventory true up that will not repeat, but how should we think about gross margins in the third quarter? Thank you. Thanks, Joshua.

Richard C. Puccio Jr.: So obviously, starting with the 73% gross margin, which was even a little higher than we expected based on some better mix and utilization. And as I mentioned, the pricing impact was pretty much as expected. For Q3, we are assuming about a 50 bps decline in gross margin, largely driven by the add of that 1-time benefit we got from repricing the channel during the prior quarter.

And from a mix perspective, we do expect it is likely to be a slight tailwind based on our outlook While as I mentioned previously, utilization is expected to be fairly neutral You know, the future, we do not see a ton of future upside on gross margin from utilization given where we are running the factories today. So that is how that is how we are thinking about it here in the near term, Joshua.

Jeff Ambrosi: Thank you, Richard. Thanks, Joshua.

Operator: Move on to our next caller, please. Certainly. And our next question comes from the line of Matthew Pan. From Cantor. Your question, please.

Analyst: Guys. Thanks for taking the question. I guess just how are you seeing the segments tracking into the July quarter today? And maybe how are you thinking about the back half of the calendar year based on your visibility? Thank you.

Richard C. Puccio Jr.: Sure. So, you know, I will just I will just start with a quick recap. Obviously, Q2, industrial came in as expected, right up 20% sequentially. And then we saw upside everywhere else, notably in auto and data center. You know, 1 of the things we talked about is the continuing strength in data center. We are also starting to see better results than expected in auto. Consumer, you know continues to show incredible resilience despite the consumer sentiment and some of the inflationary pressures. But as we look out, we do expect to see some impact there.

So if we look at what is continued above seasonal growth across industrial, automotive and communication. we think at the midpoint of the guide, what we expect to see in Q3, So from an industrial and automotive perspective, we would expect to grow sort of mid to high single digits sequentially. From a comms perspective, we expect to be our fastest grower, up low- to mid-teens, low to mid teens sequentially. Consumer is expected to be down single digits sequentially for us based on some of the things I just described. And then important baked into that outlook is also a flat channel inventory weeks. You know, we do not tend to guide out, obviously, beyond the next quarter.

But I would just remind you from a seasonality perspective, the fourth quarter for us is usually up in the low single digits. As we and so that is the best outlook we have right now for the back half of 2026.

Analyst: Thanks.

Jeff Ambrosi: Thanks, Matthew.

Operator: We will take our next question, please. Thank you. And our next question comes from the line of Stacy Rasgon from Bernstein Research. Your question please.

Analyst: Hi guys, thanks for taking my questions. I wanted to drill just a little bit more into the gross margins. So I understand the driver and I understand the guidance. We have been thinking about that 73% range as sort of a 'like for now', given utilization is maxed. It sounds like if you are gonna get more revenue upside from here, if that would suggest that you are gonna have to do more outsourcing given the flexible manufacturing. I just I am just trying to--is that logic correct? I guess, is that logic correct?

And is that sort of, I guess, the local peak on gross margins we ought to be thinking about at least in the near term on the current revenue trajectory?

Richard C. Puccio Jr.: Yeah. I actually think that is the right way to think about it. You know, near term, this is probably the right way to think about, you know, the guided gross margin is the right way to think about it. You know, obviously, you know, any more significant mix shift from a growth perspective could change that. But given but given where we see that outlook for Q3 and the potential trend into Q4, I think that is the right way to think about it. Is data center higher gross margin like industrial, or is it is it more in line, or is it lower, or what? it is basically the biggest driver of mix. Yeah.

Overall, the comms business, which includes that data center chunk, is an above corporate average business for us. Got it. Thank you, guys. Sure.

Operator: Thank you. And our next question comes from the line of William Stein from Truist Securities. Your question please. Great. Thanks for taking my question.

Analyst: Vincent, I was sort of surprised by the Empower acquisition. I would have expected ADI's heritage strength there, but certainly, its acquisitions of Linear, Maxim, by extension, Volterra. Would have provided the company a big advantage in sort of all the technical capabilities in power management. So what did Empower have that ADI decided was so special that it needed to acquire instead of developing it internally? Thank you.

Vincent T. Roche: Yeah. Good question. I mean, first off, the power space is very dynamic. It has never been as stressed from a technology portfolio standpoint for everybody. So I mean, what did so we are building intelligent power systems. We are using the breadth of the capabilities that we acquired, you know, over the MAC and LTC era. And you know, our customers are putting enormous demands on us to solve their problems across the board right from the ingress to the data center down to the chip, And, you know, the reason that we acquired Empower is that there was a gap in that portfolio, and time is of the essence.

And the biggest bottleneck that AI is creating for us today is we have got to solve for power density, and delivery efficiency. And you know, we have to move closer to the core of the problem, which is down at the XPU, the GPU, the CPU, and so on and so forth. And as I said, time is of the essence And we bought some we are buying some critical and very, very unique intellectual property. The integrated voltage reg and the capacitor technology. These are critical building blocks and essential for ADI to solve our problem to solve our customers' problems on time. And be able to catch the wave.

So you know, we are we have been building a portfolio, a vertical power portfolio. That is the future. I believe. In terms of the raw architecture. And Empower gets us farther up the value chain more quickly to solve more problems more completely for our customers. that is essentially it. And there is a lot of new TAM that we capture with this technology as well, so it is highly complementary. Well, that is the point in a space where performance demands are effectively uncapped.

Analyst: Great. Thanks, Vincent.

Jeff Ambrosi: Thanks, Will.

Operator: We will take our next question. Certainly. And our next question comes from the line of Christopher Caso from Wolfe Research. Your question please.

Analyst (Chris Caso): Yes. Thank you. If I could just follow-up on Empower a bit as well. And can you speak to if there is any revenue associated with that acquisition right now? And I am sure you are acquiring it for the IP and the engineering team, but are there any design wins in the pipeline? And when maybe provide a time line for when you would expect to able to integrate that technology into the core of ADI's product line.

Richard C. Puccio Jr.: That was a lot of questions, Christopher. Well, I will start with you know, you know, if they stay on the on their trajectory, we will see some there will be an amount of revenue, you know, upon closing in the back half of our year. It will it will certainly not be material to us in that regard. But as mentioned, it opens up a massive opportunity for, you know, significant revenue growth in the go forward, particularly as it relates to the IVR technology. So we would, you know, we would expect that to see have a perspective on the timeline, Vincent, how fast we get there?

Vincent T. Roche: Yeah. I mean, we inherit a fairly small amount of revenue. Yeah. So it is kind of in the post revenue phase. But 2027 is when we expect to start seeing the surge in demand. there is a lot of design ins in train at this point in time. The combination of Empower with ADI's large manufacturing and go to market capabilities will enable us to get to more places more quickly and get into production much, much faster. So I think we will see revenue significant revenue in 2027.

Richard C. Puccio Jr.: Thank you, Christopher. So that is good.

Operator: Thanks, Christopher. Let's take our next question, please. Thank you. Our next question comes from the line of Tom O'Malley from Barclays. Barclays. Your question please.

Analyst: Hey guys, thanks for taking my question. I wanted to zoom in on auto a bit more stronger than expected. You are kind of hearing across the supply chain coming out of the pandemic, you have moved from this kind of just-in-case and just-in-time mentality to switching to basically holding more inventory at Tier 1s and at OEMs. And I am just curious, when you are looking at where the strength is coming from in auto today, are you seeing some restocking at those end customers? I have heard it is kind of a mixed bag. Some guys are above. Target. Some guys are materially below.

Are you seeing this kind of phenomenon where guys are slowly moving back to the range that you saw kind of prior to the pandemic. And then any area that you would call out specifically as a growth driver in auto just given the broader backdrop being weaker, Any areas specific to ADI that are a little bit stronger? I know that is a couple. Thank you. Yep.

Richard C. Puccio Jr.: Thanks for the question, Tom. Great question. Maybe I will give a little bit of a background on some of the detailed part of what we have seen growing and what we are seeing in our in our customer base, and I will work my way down to your question about inventory because that obviously is an area we pay a significant amount of attention to you know, given some, you know, some of the challenges companies had burning off the inventory. But you know, you know, as we as we, you know, look at our auto business. Rich? I think I have talked about this before. You know, it has compounded double digits for us for 10+ years.

In fact, it grows even faster over the last 5 years. And a lot of that is being driven by content gain or all of that is really being driven by content gains and share gains because the units we have talked about have not changed. Now what is really important for us is you know, our gains are in the ADAS and next gen infotainment systems. So you think about our products like GMSL, functionally safe power, and A2B. You know, those have been really important investments where we have continued to see a ton of growth. Now we have talked about this in the past.

We saw some tariff related pull ins back in 2025 that we thought might weigh on our first half. We certainly saw that unfold in Q1 with the below seasonal. And we were expecting, and I mentioned this on the last call, another below seasonal quarter as a result. However, you know, it ended up favorable and reflected regular seasonality. And if you recall last quarter, and there was some skepticism, I think, we thought we would we indicated a stronger second half and that we would grow auto in 2026. That strength, which we were expecting to come through on our second half came a bit sooner.

Rich, led by a material pickup in China during the back part of the quarter, and that drove a significant part of our Q2 upside. While China still declined quarter-over-quarter, all of our other regions were up, including record performance in Europe and Japan, you know, which resulted in a record quarter for our automotive business. And then and back to the inventory question a little bit, you know, I was pleased to share for the first time in 2 years, we saw our BMS revenue grow up double digits year over year. And we are optimistic in continued growth for BMS driven by further EV penetration in Europe and China specifically.

You know, and we continue to hear that China penetration is increasing fast and that they are going to start deploying even higher levels of ADAS. We expect to see all 3 ADAS in some of the cars in China by the end of the year. So these are all strong, you know, positive things for us. And as we look out at Q3, right, we have record bookings, positive book to bill, and so we do expect to see above seasonal growth sort of in that mid- to high single-digits. You know, we are pretty confident in the outlook for the rest of the year for us in auto.

Now on the inventory buildup question, we are not seeing that yet. Rich? After the digestion, which we talked about particularly in BMS, we feel like autumn customers are fairly lean on inventory. At least the ones we talked to, and which is very supportive of our growth expectation going forward.

Operator: Thank you. We will move on to our last question, please. Certainly. And our final question for today comes from the line of Tore Svanberg from Stifel. Your question please.

Analyst (Tore Svanberg): Yes. Thank you. I just had a quick follow-up. I think there is increasing concerns about capacity especially external capacity, given what is happening on the digital side of things. I do not know if you are willing to share with us you know, numerically how much capacity you have internally. And externally, meaning how much revenue you could generate. And, you know, how do you plan to grow that over the next few years, especially now that you are growing more than 30%? Thank you.

Richard C. Puccio Jr.: Yeah. So we have talked about the work we have done to double our internal capacity and obviously continue to expand our partnerships. and we are comfortable that we have the capacity to support, you know, up to the $20 billion that we have been talking about as part of our 2030 vision. And, obviously, just as part of our normal refresh and CapEx management cycle, you know, we are continuing to look at opportunities for increased efficiency, but also opportunities to build some, additional internal capacity as needed. Rich? that is just part of the normal dynamics we go through on the on the internal side. And then, obviously, externally, you know, we have got very strong relationships.

And then to date, you know, we have not had troubles expanding across that Clearly, there is more tightness in some of the nodes, but we have not yet been unable to get the capacity we have needed.

Vincent T. Roche: Tore, we have been building, you know, coverage. We have been building, you know, both internally and externally optionality. Externally, we have put a lot of geographical optionality in play, which gives us more capacity plus the resiliency that our customers are looking for. So we still have a lot of upside on the on the current base revenue of ADI both internally and externally.

Analyst (Tore Svanberg): Sounds good. Thank you.

Jeff Ambrosi: Thanks, Tore. Thanks, Tore. All right. Thanks, everyone, for joining us today. Copy of this transcript will be available on our website and all available reconciliations and additional information can also be found in the quarterly results section of our Investor Relations website, investor.analog.com, and thank you for your continued interest in Analog Devices.

Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

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