Analog Devices Q1 Earnings Call Highlights

Key Points

• Analog Devices beat the midpoint of guidance in fiscal Q1 with revenue of $3.16 billion (up 30% YoY), a non‑GAAP gross margin of 71.2% and adjusted EPS of $2.46, driven by broad‑based growth and margin improvement.
• AI‑related businesses — notably automated test equipment (ATE) and data center power/optical — now account for close to 20% of revenue, grew rapidly in fiscal 2025 (ATE ~40%, data center ~50%) and are a key driver of future double‑digit growth.
• Management guided fiscal Q2 revenue of $3.5 billion ± $100 million (implying ~11% sequential growth), raised the quarterly dividend 11% to $1.10, and reiterated a goal to return 100% of free cash flow to shareholders.

Analog Devices NASDAQ: ADI reported fiscal first-quarter 2026 results that came in above the midpoint of management’s guidance, driven by broad-based year-over-year growth and strength in industrial and communications markets. On the company’s earnings call, CEO and Chair Vincent Roche said the quarter reflected “both cyclical improvement and company-specific execution,” while CFO Richard Puccio highlighted improving profitability and a second-quarter outlook that implies above-seasonal sequential growth.

Quarterly results top guidance midpoint

Puccio said first-quarter revenue was $3.16 billion, up 3% sequentially and 30% year-over-year, landing toward the higher end of the company’s outlook. Non-GAAP gross margin was 71.2%, up 140 basis points sequentially and 240 basis points year-over-year, which management attributed to higher utilization, favorable mix, and roughly 50 basis points from discrete items not included in the original forecast.

Operating expenses were $812 million, resulting in a non-GAAP operating margin of 45.5%, above the high end of guidance and up 200 basis points sequentially and 500 basis points year-over-year. Non-operating expense was $53 million and the non-GAAP tax rate was 12.7%. Adjusted EPS was $2.46, up 9% sequentially and 51% year-over-year.

End-market performance led by industrial and communications

Industrial was the largest segment at 47% of first-quarter revenue, rising 5% sequentially and 38% year-over-year. Puccio said strength was broad-based, with all industrial segments delivering 25% or more year-over-year growth, including record quarters for automated test equipment (ATE) and aerospace and defense.

Automotive represented 25% of revenue and was down 8% sequentially but up 8% year-over-year. Puccio pointed to continued year-over-year growth in the company’s connectivity and functionally safe power portfolios, driven by exposure to Level 2+ ADAS systems.

Communications accounted for 15% of revenue and increased 20% sequentially and 63% year-over-year. Puccio said growth was led by the company’s data center business as AI infrastructure spending drove demand for optical and power products. He also noted wireless “has now grown double digits for 3 consecutive quarters,” citing cyclical improvement.

Consumer made up 13% of revenue, up 2% sequentially and 27% year-over-year. Puccio attributed growth to upside across consumer applications, including content and share gains in wearables and premium handsets.

AI-related businesses highlighted as a meaningful revenue contributor

Roche focused much of his prepared remarks on AI-driven computing and connectivity, describing growth in two areas he said collectively make up “close to 20%” of ADI revenue: ATE and data center.

Roche said ATE revenue increased approximately 40% in fiscal 2025 and accelerated further in the first quarter of 2026. He outlined ADI’s role providing pin electronics, device power supplies, and parametric measurement solutions used in advanced semiconductor test systems. Roche said the company’s solutions can help customers increase throughput and reduce cost, including “up to 30% less energy consumption per system.”

For data centers, Roche said the business grew approximately 50% in fiscal 2025 and also accelerated in the most recent quarter. He emphasized ADI’s power management and optical connectivity portfolios, framing power delivery as the “vascular system” and power control as the “brain” of AI data centers. Roche said roughly one-third of ADI’s data center power revenue comes from hot swap and protection solutions, and another roughly one-third from DC power control, including power system management ICs and multi-phase controllers.

In Q&A, Puccio added more detail on scale and mix, saying the company’s “data center business” is now roughly 20% of total ADI and “over a $2 billion run rate.” He said about 40% of that is ATE, with the remainder tied to data center end demand, which he described as “pretty balanced between power and optical.” Management said it is “safe to say” these areas will grow at double-digit rates over the next several years, without providing a more specific forecast.

Balance sheet, capital returns, and dividend increase

ADI ended the quarter with $4.0 billion in cash and short-term investments and a net leverage ratio of 0.8. Inventory rose $111 million sequentially, with days of inventory at 171. Puccio said channel inventory increased but remained within the company’s 6–7 week target range, and ADI is continuing to build die bank and finished goods buffers “to help support the upsides we are seeing.”

Over the trailing twelve months, operating cash flow was $5.1 billion, capital expenditures were $0.5 billion, and free cash flow was $4.6 billion, or 39% of revenue. Roche reiterated the company’s long-term objective to return 100% of free cash flow to shareholders, and Puccio said the company targets using 40%–60% for dividends with the remainder for share count reduction.

Management also announced an 11% dividend increase, raising the quarterly dividend to $1.10 per share. Puccio called it the company’s 22nd consecutive annual dividend increase.

Second-quarter outlook implies above-seasonal growth; pricing and mix to aid margins

For the fiscal second quarter, ADI expects revenue of $3.5 billion ± $100 million, with a midpoint operating margin of 47.5% ± 100 basis points and a tax rate of 11%–13%. Adjusted EPS is expected to be $2.88 ± $0.15. In response to an analyst question, management said its guidance implies about 11% sequential growth, above typical seasonality of 4%–5% for the quarter.

By end market, the company expects industrial to be up about 20% sequentially and roughly 50% year-over-year in Q2, aided by cyclical recovery and strength in ATE and aerospace and defense. Communications is expected to rise high single digits sequentially and about 60% year-over-year. Automotive is expected to be flat to down sequentially, which management tied to an unwind of prior pull-ins related to tariffs and macro factors, while consumer is expected to be down mid-single digits in line with seasonality.

On pricing, Puccio said about one-third of the quarter-over-quarter revenue increase at the midpoint is expected to be related to price. Excluding pricing uplift, management described the implied sequential growth outlook as closer to 7%. He also said roughly half of the price lift relates to repricing of channel inventory and “will not repeat” in Q3, while adding the company expects about 50 basis points of incremental growth in each of Q3 and Q4 related to price.

Puccio said ADI expects 100 basis points of gross margin expansion in Q2 on a reported basis, or 150 basis points when excluding Q1’s discrete items, driven by favorable mix and pricing. Operating expenses are expected to grow in the mid-single-digit range due to factors including hiring in strategic investment areas, a higher bonus factor, and costs related to the company’s GTC conference, though OpEx as a percentage of revenue is expected to fall.

Management also said it is not seeing signs of OEM restocking. In response to questions on industrial demand, executives pointed to improving order trends, including industrial book-to-bill “well above 1” in Q1 (excluding any impact from pricing), and said customers appear to be ordering to consumption as digestion phases ease.

About Analog Devices NASDAQ: ADI

Analog Devices, Inc NASDAQ: ADI is a multinational semiconductor company that designs, manufactures and markets a broad portfolio of analog, mixed-signal and digital signal processing integrated circuits. Founded in 1965 by Ray Stata and Matthew Lorber, the company has grown into a leading supplier of components that convert, condition and process real-world signals for electronic systems. Analog Devices is headquartered in Massachusetts and serves customers around the world across multiple end markets.

The company's product lineup includes data converters (ADCs and DACs), amplifiers, power management ICs, radio-frequency (RF) and microwave components, sensors and MEMS devices, signal chain and isolation products, timing and clocking solutions, and embedded processors and software for system-level design.

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