Analog Devices Inc (ADI) — Q2 2018 Earnings Call Transcript

Thank you, Jennifer, and good morning, everybody. Thanks for joining our second quarter 2018 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 related financial schedules at investor.analog.com. This conference call is being webcast live, and a recording will be archived in the Investors section of our website. Now on to the disclosures. The information we're about to discuss, including our objectives and outlook, includes forward-looking statements. Actual results may differ materially from these forward-looking statements as a result of various factors, including 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 commentary about ADI's second quarter financial results will include non-GAAP financial measures, which exclude special items. When comparing our second quarter results to our historical performance, special items are also excluded from the prior quarter and year-over-year results. Available reconciliations of these non-GAAP measures to their most directly comparable GAAP measures and additional information about our non-GAAP measures are included in today's earnings release and on our web schedules, which we've posted under the Quarterly Results section at investor.analog.com. Okay. So with that, I'll turn it over to ADI's CEO, Vincent Roche.

Thanks, Mike, and good morning, everyone. Well, the second quarter of fiscal '18 was remarkable for ADI. We posted non-GAAP diluted earnings per share above the high end of our guidance and set a new high-water mark in free cash flow generation, and I'm pleased to share some perspective on our results with you now. So revenue in the second quarter came in just above the high end of our guidance as strength across our B2B markets, especially in the industrial and communication sectors, offset the expected decline in Consumer. Our results were also supported by our Linear Technology franchise, which posted a record revenue quarter. Gross and operating margin expanded substantially compared to the year-ago quarter, driving a more than 40% increase year-over-year in our non-GAAP diluted earnings per share. This execution resulted in record free cash flow in the quarter, and our combined company adjusted free cash flow margins over the trailing 12 months continue to place us in the highest tier of the S&P 500. Now before we go deeper into our financial performance, I'd like to take this opportunity to provide investors with a deeper perspective on some of our key technology and market trends and ADI's strategy relative to them. I've spoken before about the dawn of the third wave of information and communications technology or ICT, which is characterized by ubiquitous sensing, hyperscale and edge computing, and pervasive connectivity. In this world, digital systems increasingly rely on real-world information to make mission-critical decisions, and the accuracy and the integrity of this information is becoming more and more important. Simultaneously, the actual challenge of identifying and extracting signals in the presence of increasing levels of noise is becoming harder. Now I believe that this is creating an inflection in the analog industry, and it's enabling ADI to play a critical role in generating and communicating high-quality information to leverage our cutting-edge innovation and solutions to tackle our customers' hardest problems from sensor to cloud, microwave to bits and nanowatts to kilowatts. It's our ability to sense, measure, interpret, power and connect these two worlds that is helping to enable autonomous machines, natural human to machine interaction, and future important technologies, such as virtual and augmented reality and so on. Today, though, I'd like to talk more specifically about connectivity and 5G, which has been the subject of much news coverage lately and which represents the next big investment phase in wireless infrastructure and how we view its evolution and timing. In fact, an entirely new wireless and wireline network architecture will ultimately be needed to meet the demands for orders of magnitude increases in bandwidth-hungry areas such as high-definition video streaming. Although 5G will provide revolutionary capabilities, the transition to 5G will be evolutionary. We see the first phase of this evolution being the addition of massive MIMO, which will provide a significant increase to the capacity of the current 4G wireless network. The use case and benefits of massive MIMO to the carriers are real. A massive MIMO system can deliver a greater than 3x data capacity increase in the same spectrum as a current 4G base station. And this helps to solve two large challenges for carriers: capacity and cost. ADI is enabling these massive MIMO implementations today through our highly integrated software-defined transceiver platform. This solution reduces the radio card area by a factor of 10 and the overall remote radio head footprint by 50% while simultaneously reducing power consumption. These are critical success factors with massive MIMO systems since they use, on average, 8x the number of radios compared to today's systems. Equally important, these transceivers have the flexibility to operate from 300 megahertz to 6 gigahertz as they are software programmable, giving our customers a single platform-based design that can quickly be modified to operate in any of the many different cellular bands that exist around the world. These radios can also scale from small cells to macro base stations to massive MIMO radios, and they offer a flexible architecture capable of rightsizing the analog and digital performance needed by a customer's product family. However, to realize the longer-term 5G ambition, further network change is needed. In order to further expand the network bandwidth, millimeter wave solutions will come into play in order to provide multi-gigabit per second wireless connectivity using phased-array solutions. In that arena, ADI is leveraging the capabilities from our Hittite acquisition. We have a very unique market position of having deep competency from antenna to bits up through millimeter waves, and our solutions and technologies are well positioned in the current millimeter wave trials around the world. This will expand ADI's opportunities as it emerges. In addition to adding massive MIMO and millimeter waves, 5G will require a complete re-architecting of the core wireless and wireline network, including a move toward network virtualization and more edge computing. This backbone network will be required to meet the 5G vision of greater than 1 gigabit per second download speeds, low latency, and high reliability demanded by mission-critical applications such as digital health care, autonomous vehicles, fully autonomous factory floors, and augmented reality systems. This network expansion will drive a significant upgrade of the backhaul system, opening a new stream of opportunity for ADI's optical and point-to-point microwave solutions. 5G represents an enormous opportunity for ADI as we are uniquely positioned to provide the enabling technology through our comprehensive portfolio of high-performance mixed signal, RF and microwave, and power management technologies. The combination and integration of these innovative capabilities will allow us to create even more comprehensive and compelling signal chain solutions for our customers and the opportunity to capture up to 3x the revenue when compared to our 4G solutions. Now while we're obviously excited about the remarkable potential of 5G, the greater volume of our communications business in the next couple of years will still be 4G. And here, our business is strong and has been growing at a high single-digit rate over the trailing 12 months. Our growth has significantly outpaced industry CapEx spend as we have seen share gains in traditional 4G macro products, thanks to new RF offerings resulting from the combined strength of our ADI and Hittite engineering teams. Those results have been augmented by strong adoption of our integrated software-defined transceivers across macro, small cells, and massive MIMO trials. So in summary, we feel very confident and energized by our communications market success, which is built upon close partnerships with our customers, our domain know-how, our unwavering desire to solve the toughest engineering challenges, and strategic investments in research and development, along, of course, with our acquisitions of Hittite and Linear Technology. So looking forward, we expect to continue to outperform in the communications market and accelerate our growth as we fully address our customers' needs well into the 5G future. Of course, 5G is just one of the many areas ADI is taking advantage of in the era of digitalization. In this ubiquitously sensed and connected world, there are many exciting new opportunities, areas such as industrial 4.0, autonomous and electric transportation, and cloud computing. And in future earnings calls, I'll continue to speak to these opportunities with you and look forward to sharing how we are creating long-term value for our customers and for our shareholders. And so with that, I'd like to hand over to Prashanth.

Thank you, Vince. Good morning, everyone, and let me add my welcome to our fiscal 2018 second quarter earnings call. With the exception of non-op expenses, my comments on the P&L line items will be on a non-GAAP or adjusted basis, which excludes special items outlined in today's press release. Revenue for the quarter was just over $1.51 billion, above the high end of our guidance, and increasing 25% year-over-year and up 7% sequentially on a 13-week basis. Now before I move on to the rest of the P&L, let me give you some commentary around our market performance in the quarter. Looking at the combined company, our B2B revenue increased 14% year-over-year, led by double-digit growth in the industrial and communications markets. The industrial end market represented 52% of sales in the quarter. Growth in this market was once again broad based, with nearly all applications and geographies increasing double digits compared to the year-ago quarter. Momentum continues as our targeted R&D investments aimed at the underlying sector trends of automation, instrumentation, and health care continue to drive outperformance. Turning to the comms market, which represented 19% of sales in the second quarter. Sales into both wireless and wired applications increased compared to the same period last year. Furthermore, our wireless business has increased at a high single-digit rate over the trailing 12 months. Our growth is due to share gains related to our complete portfolio of high-performance mixed signal RF and microwave, as well as the strong demand for our integrated transceiver and our position on virtually all of the 5G and massive MIMO trials. As Vince mentioned, we expect to grow our comms revenue at a mid-single-digit rate in the backdrop of a flat CapEx environment ahead of 5G rollout, and 5G represents an enormous opportunity for ADI as we are positioned to provide the enabling technology with our comprehensive portfolio. Our auto business represented 16% of sales in the quarter. After a better than seasonal first quarter, second quarter sales increased at a low single-digit rate compared to the year-ago quarter, with growth led by the infotainment and powertrain applications. And finally, our Consumer business represented 13% of sales in the second quarter, and as previously communicated, decreased compared to our year-ago quarter. Let me now move to the rest of the P&L. Gross margins of 71.3% came in around the midpoint of guidance and increased slightly compared to the first quarter on a more favorable mix. OpEx in the second quarter was $442 million or approximately 29% of revenue. Strong revenue growth combined with operational execution delivered operating margins above 42% and at the upper end of our guidance. Non-op expenses in the second quarter were $62.5 million. We expect our non-op expenses to be approximately $58 million in our third quarter and to decline by $2 million to $3 million in our fourth quarter of fiscal '18. Our second quarter non-GAAP tax rate was 5% as we adjusted the tax rate for the full year to 6%. Looking to the third and fourth quarters, we expect our non-GAAP tax rate will remain between 5% to 7%. There is no change to our expectation for fiscal 2019, and we continue to expect our long-term tax rate to be approximately 12%. Non-GAAP diluted earnings per share for the second quarter came in above the high end of guidance at $1.45, increasing over 40% year-over-year. Now I'll cover the balance sheet. As we planned, inventory decreased 2% sequentially and days were 116 in the quarter, down from 124 days in the first quarter. Distribution inventory was approximately 7.5 weeks, which is flat sequentially and up slightly compared to the year-ago quarter. We generated record free cash flow of approximately $665 million in the quarter, with associated free cash flow margins of 44%. And in the trailing 12 months, adjusted free cash flow for the combined enterprise was $1.9 billion. During the quarter, we paid down $450 million of debt, which helped reduce our net debt-to-EBITDA ratio to 2.2x, down from the 2.4x in the prior quarter. We expect to achieve our 2x leverage ratio within the next 2 quarters. Capital additions in the second quarter were $54 million, and we expect CapEx for fiscal '18 to run at our model of approximately 4% of sales. And during the quarter, we paid $178 million in dividends, with an associated quarterly cash dividend of $0.48, representing an annual dividend payment of $1.92 per outstanding share of common stock. So let's now turn to our outlook and expectations for the third quarter of fiscal '18, which with the exception of revenue is also on a non-GAAP basis and excludes items outlined in today's release. At a high level, we're expecting the third quarter to look a lot like the second quarter. We're planning for revenue in the third quarter to be in the range of $1.47 billion to $1.55 billion. At the midpoint of guidance, we expect our B2B markets of industrial, auto, and comms in the aggregate to increase approximately 10% year-over-year. We're planning for gross margins to increase approximately 50 to 150 basis points compared to the year-ago quarter. And we expect our operating expenses to be flat to up $10 million year-over-year. At the midpoint of guidance, this implies OpEx as a percentage of sales of approximately 29%. Based on these inputs, we expect operating margins in the third quarter of 2018 to be in the range of 41% to 43% and for diluted earnings per share, excluding special items, to be in the range of $1.38 to $1.52. So to wrap it up, this was another terrific quarter for ADI, and we set a few records along the way. Our B2B business increased double digits year-over-year, and our strong operational execution drove gross and operating margins higher, which resulted in a record free cash flow in the quarter. And with that, I'll turn it over to Mike for our Q&A session.

Thanks, Prashanth. Now let's move on to our Q&A session. Jennifer, can we have our first question, please?

First question for Vince. You talked about participating in 5G trials. Could you elaborate a little bit more on that? It sounded like you're participating in pretty much all of them out there. But if you could give some context, that would be great.

Yes, thanks, Tore. Well, as I said in the prepared remarks, there are really kind of two phases to 5G, at least from an ADI perspective. There is the pre-millimeter phase and the millimeter phase. And the pre-millimeter phase is really dominated by this massive MIMO expansion, which is really an overlay on 4G. So our software-defined transceivers are absolutely everywhere in the systems that are being brought to market this year and next year. In fact, it's one of the fastest-growing product sectors inside ADI. So that's been a very strong contributor to our communications business and, in fact, beyond. These transceiver technologies, because they're so flexible, are usable as well in places beyond communications. Also, the combination of Hittite and ADI from RF to bits and microwave to bits is enabling us to capture new content in kind of pre-5G systems. But it's the combination of our massive MIMO, our Hittite-ADI microwave, and millimeter wave to bits technology that is enabling us to be participating in virtually all these field trials across the globe. My sense, Tore, is that U.S. and China will be in the kind of '19, '20 time frame. We'll be at least trialing some particular applications. China will get faster to mass market, I think, with what they call 5G, which is really to me, 4.5G plus massive MIMO. So I hope that explains what it is we're doing. And in the run-up to what will be pure 5G in the 2024, 2025 time frame where the core network gets changed with virtualization, edge computing, and pure millimeter wave-type technologies, spanning multiple different frequency levels.

Thanks, Tore. Do you have a follow-up?

Yes, just a follow-up for Prashanth. Prashanth, with the gross margin being up year-over-year, is that mainly a function of mix? Or are there any other contributors there? I mean, obviously, the revenues are slightly higher. But is the main upside to gross margin year-over-year coming from mix?

Sure. Well, Tore, remember that we have now completed the implementation of all of our synergies related to the acquisition of Linear. So we now have built into our run rate the cost synergies that we committed to at the time of the acquisition. So that is contributing as well to the gross margin strength. And then I would also say that with volumes where they are, we're getting the benefit of strong utilization at our internal fabs.

I'd just add that we have an additional $100 million of cost synergies we talked about. So the $150 million is complete, and we still have another $100 million on the comm. We'll take our next question, please?

Can you hear me?

Yes, John. You're a little faint, but good morning.

Vince, I really appreciate all the color on the comms business. But I want to talk a little bit about your auto business. You had really strong growth in the January quarter that decelerated pretty significantly in the April quarter, which was a little bit surprising, especially, I think you said in your prepared comments that the Linear business was achieving new all-time records. So I'm just kind of curious, you've kind of been undergrowing your peers in auto, which was explainable over multiple years because of the MEMS part of your business. But that should be a fairly small part of the business now. So I'm just kind of curious as to what's holding back growth in that market, and how you kind of feel your long-term position is in the auto space.

Thank you, John. Currently, our business aims to grow at the higher end of the 2 to 3 SAAR range. Our goal is to align the combined company with that trajectory. While we are underperforming compared to my expectations and aren’t satisfied with our current status, I want to explain the situation and outline our path forward. In our last call, we noted that the profiles for ADI and LTC are quite different in the automotive sector today. The legacy ADI business rose to 2 to 3 SAAR in 2017, and we are on track to replicate that this year. Conversely, LTC's growth has hovered in the low single digits, around 1 SAAR. However, we’re making significant strides to improve LTC's growth rates and have discovered numerous revenue synergy opportunities, adjusting our business logic toward growth while still valuing profitability. It’s important to note that in this market, it takes time for design wins to translate into revenue, and I believe they won’t have a significant impact for a couple of years. Now, I want to share the momentum in our business and our efforts to push our revenue towards the high end of the 2 to 3 SAAR range. We have three main application areas: infotainment, autonomous driving, and electrification. In infotainment, we have secured many premium audio sockets, establishing a solid foundation for our business and beginning to incorporate LTC power into clusters of ADI, DSP, and mixed-signal technologies. Our A2B technologies are also gaining traction, with about a dozen OEMs planning to implement them globally over the next few years, creating opportunities for LTC power attachment. Regarding autonomous vehicles, we are making inroads with our LIDAR solution, securing design wins for long and short-range systems, which include both ADI mixed-signal technologies and our LT portfolios. This complements our work on advanced solid-state beam steering and photodetector technology, driving down size, cost, and power requirements, and we expect this to facilitate mass deployment of LIDAR in the coming years, aided by our acquisition of Vescent last year. We have also established several design wins with our inertial management units, engaging with almost every self-driving platform currently under development, including traditional OEMs and innovative disruptors. On the electrification front, our BMS business, acquired from LTC, has seen us reclaim lost business by shifting our focus toward growth, protecting our sockets, and utilizing the scale and flexibility of the ADI manufacturing system to enhance our cost structure. We're expanding LTC's customer base, integrating its technology with ADI's strong relationships in North America and Europe. Our next-generation BMS is set to surpass our already high performance, delivering more miles per charge along with enhanced robustness and safety features. Additionally, we are gaining momentum in our unique isolation technologies, critical for high-voltage and low-voltage connections in electric vehicles. I believe that, in the foreseeable future, we can add one or two points of overall growth to our automotive business, given our design cycles and the strength of our power portfolio. Our focus is on bending the growth curve through the right applications and customers. With our robust technology story and complementary customer bases, I am optimistic about our future and believe we can achieve the growth trajectory we've publicly stated. I appreciate your attention, John, and thought it important to explain where we stand and discuss our outlook.

Thank you for the thorough responses, particularly regarding wireless and 5G. However, there is some controversy in that market concerning ZTE and the potential restrictions on shipping components to them. I have two questions about this. First, what does your outlook predict for sales to ZTE moving forward? Second, how would a shipping ban to ZTE affect your perspective on the overall growth of that market? Specifically, could there be a slowdown in adoption in China if they lack two local champions?

Yes, thanks for the question. So the way we view it in the short term, there's a certain amount of fixed CapEx in place to upgrade the various networks across the globe and particularly in China. So my sense is that there are many other competitors in play who will fill the demand for building out the networks across the globe. We have factored into our numbers a potential continued embargo with regard to ZTE, so it's built into our numbers. It was a small amount of headwind for the company last quarter. So I think, overall, most geos are up in communications for ADI, we're gaining share. You know, my sense is as well, just we're obviously staying close to the situation as best we can tell, the negotiation outcomes that are taking place. But I will tell you, clearly, U.S. and China need each other. And I think trade between both is very, very critical. My sense is that sense will prevail, and the need for free trade, unencumbered trade will prevail. And we're expecting political leaders to figure this out. So my sense is at the end of the day, there's demand there for more and more connectivity. Carriers are determined to keep building their networks out, to capture the opportunity to build their revenue and profit streams. And that demand is going to be fulfilled one way or the other.

A question on Consumer. You appear to be navigating the falloff at your largest customer. So just from kind of a high level, if you can just talk about the puts and takes from some of the drop-off there versus other opportunities and areas where you're actually growing within Consumer.

Yes, as you know, Craig, our Consumer business has two distinct aspects. One is our prosumer segment, which resembles our B2B market, featuring many customers, products, and various applications worldwide. This segment has been further supported by the addition of LTC revenue and applications, contributing over $300 million, making it a significant part of Consumer for ADI. Looking ahead to the latter part of the third quarter and into the fourth quarter, we anticipate a seasonally strong period. We have previously mentioned that Consumer is projected to decline by 20% to 30% for the year, and that appears to be how things are trending now. Our strategy remains unchanged: we aim to leverage our technologies in areas with high differentiation to achieve better returns on investment, and we are committed to executing this strategy.

Craig, do you have a follow-up?

I do. Just a question on free cash flow and kind of capital allocation for Prashanth. So encouraging to see the big step-up in free cash flow in the quarter. As you're on the doorstep of that 2 turns target for net leverage, can you remind us in terms of just priorities, be it acquisitions versus returning cash and how you think about that?

Sure. Thanks for the question, Craig. So yes, it was a great quarter for us in free cash flow, but I do want to remind folks that our cash flow can be lumpy quarter-to-quarter. So the right way to measure us is on a trailing 12 month, and we finished this quarter with trailing 12 month of $1.9 billion. So we recognize that this franchise throws off a considerable amount of cash and, therefore, we want to be very thoughtful on how we deploy that excess cash once we achieve our 2x leverage ratio, which we would expect to do in the next two quarters. We're very mindful of the debt that we took on as a result of the Linear acquisition, as well as the opportunities that we have in front of us with the share repurchase, dividends, and potentially some other uses as well. So it's something that we spend some quite a bit of time internally debating. And I think you'll hear from us in a coming earnings release that we're ready to talk more about our capital allocation strategy once we clear that important 2x threshold.

I guess, if I could combine my questions into one large one. On the industrial side, could you share with us a little bit more detail in terms of what the drivers were there underlying that superb growth. And then can you talk about the sustainability of that growth going forward? And then longer-term, as part of revenue synergies with Linear, clearly, auto has been a major focus. So could you kind of, I guess, help us see what kind of underlying growth we could see from top line synergies in that segment looking out the next one, two, three years?

Yes, great. Thanks for the questions, C.J. So the industrial business has been doing extraordinarily well, as you mentioned. We continued to be driving this with the technology investments that we've made. It is across the board, C.J. It is all geographies, it is all products. So this is really a combination of the strength of a global expanding environment, and you know the PMI continues to be in an expansionary phase. And that's compounded by the technology investments that have been made over the last several years, which have now come together at a time where you can really see the driver in automation, you can see the driver in our instrumentation business. So it's really across the board, and it's hard to point to any one particular segment because it is so broad-based, and it's a reflection of the investments that have been made over the last several years. From where we sit today, and you can see it reflected in our guidance for the coming quarter, we feel very strong about the coming quarter. The outlook is solid. Our book-to-bill is greater than 1. Information from the channels, the information Vince gets from his customer visits are all continuing to tell us that we're going to see this run for a bit longer.

Thanks, C.J. I want to emphasize that our long-term growth in that business is projected to exceed twice the GDP. The five-year compound annual growth rate in that sector is around 8% to 9%. This reflects the long-term growth potential for that part of our business, which accounts for 50% of our operations and generates significant cash flow. Do you have a follow-up, C.J.? You actually asked two questions, so let's move on to the next caller.

The first question is broader in scope. Based on your comments from the previous question, it appears you are quite confident that these favorable conditions will persist. Can you discuss your insight into customer inventory levels and channel inventory? Additionally, given the strong industry conditions, how are you ensuring that customers are ordering according to their needs and not excessively at this time?

Thank you for the question. As a reminder, we have not adopted ASC 606, so our revenue is recognized based on sell-through from the channel. This gives our investors a true reflection of the actual activities occurring at the customer level. Currently, the inventory we see in our channel is about 7.5 weeks, which is consistent with previous levels. We anticipate that this will decrease slightly as we move through the fiscal year. Our in-house inventory is at 116 days, which is an improvement of about 8 days compared to the first quarter. We are comfortable operating within the 115 to 120 range, so that's where we expect to be for the remainder of the period. Our sales team collaborates closely with channel partners to monitor order activity, ensuring that we are mindful of lead times and appropriate ordering behavior. However, our key metric remains the revenue reported from sell-through, which is not affected by any fluctuations in channel inventory, whether there is an increase or decrease.

Yes, to provide some additional context, all the macro dynamics we've discussed benefit the industrial sector. Based on conversations with global customers, they remain pragmatically optimistic about the future, and we are experiencing a long-term growth trend across various applications in the industrial space. This optimism is consistent across areas like automation, instrumentation, and aerospace and defense. Overall, our customers are feeling positive, and I share that sentiment regarding our position and the market.

Vince, thanks for all the wireless comms commentary earlier in the call. Just wanted to level set. How does your 20% roughly comms business split between wireless and the wired side? And given that you gave us all that color on the wireless side, I wondered what your expectations were for the wired part of the equation.

Good question, Ross. Thank you. Well, today, with the acquisition of LT, our business now is about 50-50 between wireless and wireline. The wireless business, my sense is that can grow in the high single digits for quite a while to come. That's my long-term growth objective in that business. Wired is somewhere in the kind of mid-single digits as it has been growing, and I think that's a reasonable way to balance the growth expectations across that business.

Do you have a follow-up, Ross?

Yes, and I'll make it a quick one for you. Vince, you mentioned a few times in this call about changing the business model at Linear to be a little bit more growth-centric. Can you give us an idea, given the long-term design cycles, and I know it's not going to be immediate, but when should we as investors start to see the benefits of those tweaks to the admittedly successful Linear model turning to a little bit more growth-centric?

We anticipate seeing growth primarily in the communications and automotive sectors over the next couple of years. We already have the necessary infrastructure in place to facilitate this growth. To achieve our goal of enhancing the company's overall growth by a few percentage points, we expect a timeline of approximately 2 to 4 years. Looking at our experience with the Hittite acquisition, which occurred nearly four years ago, we successfully doubled Hittite's growth during that time. Therefore, for every dollar of Analog Devices revenue, which predominantly comes from mixed-signal products, we predict an equal amount from power revenue. This illustrates the growth potential we are targeting, but it will take us 2 to 4 years to see significant impact on our revenues.

I wanted to follow up on Ross's comment and maybe take a longer-term look at the 5G opportunity that's in front of ADI. If we look back at the transition from 2G to 3G, and then 3G to 4G, as you look ahead and look at 5G and the potential for 5G to impact ADI revenues, the questions I have are, one, how do you expect pacing in the 4G to 5G revenue transition to compare to prior transitions? When do you think we get to a point where 5G would be a majority of communications revenue? And relative to some of the growth rates that you talked about earlier on a sub-segment basis, would you expect 5G when it becomes a much more material part of revenues, to accelerate those growth rates?

Good question, Craig. And if you consider 5G to be the initial introduction of 5G to be adding massive MIMO to 4G core network, I think we'll see meaningful revenue in the 2020 time frame. And I still think that 4G, without massive MIMO, will be a significant portion of revenue into the kind of 2022 timeframe. So somewhere between 2022 and 2025, we'll start to see what we will consider to be 5G become a more dominant part of our wireless communications infrastructure revenue. So at this point, Craig, it's a bit of a guess based on trying to triangulate on all the various conversations we have with carriers and customers. But I think, clearly, we're starting to see the uptick in 4.5G, or as it's called in China, 5G, massive MIMO based on 4G infrastructure at this point. So hopefully, that helps to give a bit of clarity to you.

Okay. Thank you, Jennifer. And thank you, everyone, for joining us this morning. A copy of the transcript will be available, and all available reconciliations and information can also be found at the Quarterly Results section of our Investor Relations site at investor.analog.com. Thanks for joining and your continued interest in ADI.