Analog Devices Inc (ADI) — Q3 2020 Earnings Call Transcript

Thank you, Cheryl and good morning everybody. Thanks for joining our third quarter fiscal 2020 conference call. With me on the call today are ADI's CEO, Vincent Roche; and ADI's CFO, Prashanth Mahendra-Rajah. For anyone who missed the release you can find relating financial schedules at investor.analog.com. Now on to the disclosures. The information we're about to discuss includes forward-looking statements including statements relating to our objectives, outlook, and the proposed Maxim transaction. These forward-looking statements are subject to certain risks and uncertainties as further described in our earnings release our most recent 10-Q and other periodic reports and materials filed with the SEC. Actual results could differ materially from the forward-looking information as these statements reflect our expectations only as of the date of this call and we undertake no obligation to update these statements except as required by law. Our comments today will also include non-GAAP financial measures which exclude special items. Comparing our results to historical performance, special items are also excluded from prior periods. 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 with that, I'll turn it over to ADI's CEO, Vincent Roche. Vince?

Thanks very much Mike and good morning to you all. I hope that you and your families are healthy and safe at this time. So, I'll start my remarks today on our quarterly results and the current operating environment before providing you with an update on our priorities. This includes additional insight of course into our recently announced acquisition of Maxim Integrated. ADI executed exceptionally well in the third quarter despite the highly uncertain environment. Demand was resilient surpassing our expectations leading to stronger than expected results. We saw continued strength in communications across both wireless and wireline applications, healthcare saw record demand, and other parts of our industrial portfolio such as instrumentation tests also performed well. Unsurprisingly, the main area of weakness was automotive driven by global factory shutdowns and lower vehicle sales. Turning to supply, we're operating at normal capacity which helped us clear backlog and bring supply and demand into a better balance. Our team delivered third quarter results above the midpoint of our revised guide with revenue at $1.46 billion and EPS at $1.36. B2B revenue was flat year-over-year and increased 11% sequentially, and both gross and operating margins returned within the range of our financial model at 70% and 42% respectively. We also generated $1.8 billion of free cash flow or 33% of revenue over the trailing 12 months. This continues to place ADI in the top 10% of the S&P 500. These results further underscore the strength and flexibility of our business model against any economic backdrop and I'm proud of how the ADI team continues to deliver for our customers. Now, I'll turn to an update on our strategic priorities. We're focused on spending our capital efficiently and the first call is funding new product development. During the quarter, we invested approximately $260 million in R&D with more than 95% targeted at the most attractive B2B opportunities. This continued reinvestment in our business is leading to excellent customer engagements and let me provide you now with a couple of examples. In our communications business, we announced the collaboration with Intel to create a flexible radio platform that will enable customers to scale their 5G networks more quickly and more economically. The high-performance ORAN compliance solution leverages our market-leading software-defined transceiver technologies. This positions ADI to expand our market leadership. In automotive, our new road noise canceling solution is gaining traction. Since announcing our initial win with Hyundai in February, we've added five more customers including the North American leader in electric vehicles. This innovative solution reduces the car weights by almost 100 pounds and energy requirements by about 3%, while potentially doubling our content opportunity per vehicle. We're seeing great design momentum across our diversified industrial market also. For example, in factory automation, customers are rethinking supply chains to make them more flexible with faster response times. And to quicken the pace of adoption, we have formed an alliance of partners to develop an open source architecture. I'm excited to announce a Fortune 500 health care customer is teaming with ADI to help upgrade its manufacturing capabilities, using more connected robotics, thereby doubling our addressable market. And in space, we have design wins going to production this year with traditional aerospace companies and new emerging disruptors that enable the proliferation of next-generation communication satellites. These satellites continuously change their position to earth and require space grade phased array and beam forming technology to create an uninterrupted connection. And we're using this strong position in RF to attach power technologies thereby increasing our addressable market by one-third. ADI also remains committed to strong shareholder returns. This quarter, we returned approximately $230 million through dividends. Recall that we paused share buybacks due to the pandemic. This has helped us further solidify our balance sheet with a cash balance of more than $1 billion. At this point, I'd be remiss to not discuss our M&A strategy in the light of the Maxim acquisition. ADI selectively uses M&A to expand both our scale and our scope in order to better address the future needs of our customers and deliver sustainable profitable growth. And while cost synergies are an important element in evaluating any acquisition from our perspective, the most compelling benefits come from combining technology portfolios to capture new addressable markets and drive long-term revenue synergies. This revenue takes time to realize given the nature of the Analog business, but our products deliver recurring revenue streams and cash flow for decades. Therefore, we strive to achieve our return objective within approximately five years. This time frame allows us to not only achieve the stated cost savings, but also begin to capture the early revenue synergies. And I think the acquisition of LTC illustrates the benefits of our strategy. Our top priorities there were harmonizing the two organizations to create an entity that is better than the sum of its parts. To that end, I'm proud to say that we've retained and invested in LTC's exceptional engineering talent. Together, we've created an exciting road map of high-performance analog and power solutions combined. We're exceeding our original $150 million cost synergy target and we're on track to realize the next $100 million exiting fiscal '21. And from a revenue perspective, we've more than doubled our pipeline value and we have over $500 million of lifetime revenue coming to market this year, increasing our confidence in doubling LTC's historical growth rate. With LTC complete, we pursued the acquisition of Maxim to strengthen our leadership in the analog industry, better positioning ADI to capitalize on secular growth trends. Over the last five years, Maxim has shifted its business strategy to focus on B2B markets, while enhancing profitability. As a result, Maxim has increased its B2B revenue mix to approximately 80% of total from 55%, expanded its gross margins by more than 500 basis points and increased its free cash flow margin by over 600 basis points during this period. Combined, we're confident we will continue to improve Maxim's performance. This will be driven by our cadre of engineering talent, complementary technologies and breadth of market applications that I'd like to expand on a little here. The cultures of ADI and Maxim are very aligned. Both companies share a commitment to innovation and engineering excellence. With a combined team of more than 10,000 engineers and $1.5 billion of annual R&D investment, we will continue to be the destination for the world's best analog talent. And with three times the field technical resources, we'll be better positioned to uncover cross-selling opportunities and serve existing and new customers, who have an increased need for application and design support. In the area of power management, Maxim's application-focused offerings are highly complementary with ADI's more general purpose or catalog power portfolio. Together we will have a more comprehensive power portfolio with approximately $2 billion of revenue. This is particularly important, as power is the largest and fastest-growing Analog subsegment and with increasing design complexity and the need for better efficiency, the system power challenges that our customers must overcome continue to rise and rise. In automotive, Maxim has one of the premier franchises increasing revenue at a mid-teens rate over the last five years. They're a leader in high-speed data connectivity for cameras, radars, and processors with serial link technology, while ADI is a leader in audio solutions with our A2B platform and both companies are well positioned in vehicle electrification, enabling us to better address automakers' EV requirements, which continuously evolve. Together, we will capture more of the increasing system content per vehicle and enable a better experience for the consumer. Taking a step back, the combined company will have unique positioning with 85% exposure to highly profitable long life B2B markets. Maxim's strengths in the automotive and data center markets will complement ADI's strengths across the industrial, communications and digital health care markets. Additionally, the combined company will have increased financial strength. We expect the combination to be accretive to adjusted EPS within 18 months post-close with targeted cost synergies of $275 million by the end of the second year. We also expect to maintain an industry-leading financial profile. As always, we are committed to generating robust free cash flow and our goal is to reach the high end of our margin range of 40%. With our lower leverage ratio at close, we'll also have the opportunity to deliver enhanced cash returns to our shareholders. And I believe that together we can grow revenue at mid-single digits, due to our alignment with important secular growth trends, such as Industry 4.0, digital health care, next-generation communication systems and vehicle electrification as examples. So in closing, we're seeing promising evidence that a broad-based recovery is underway. However, we recognize that the recovery is highly dependent on the future impacts of the pandemic. We've used this unprecedented time to better align our organization and investments into the most important areas. We believe we'll emerge stronger and are better positioned to drive profitable growth. And as I've shared today, we're very excited about the combination with Maxim, which will drive the next wave of disruptive innovation and deliver significant benefits for all stakeholders. And with that I'll turn it over to Prashanth to go through the financial details and outlook.

Thank you, Vince. Let me add my welcome to our third quarter earnings call. As a reminder, my comments with the exception of revenue and non-op expenses will be on an adjusted basis, which excludes special items outlined in today's press release. When we provided quarterly guidance in May, we were facing tremendous uncertainty just returning to normal capacity levels and experiencing volatile demand patterns across end markets. As we progressed through the quarter, we saw stronger-than-anticipated demand that resulted in less cancellations and higher-than-anticipated backlog conversion. With that as context, our results came in above the midpoint of our revised outlook with revenue of $1.46 billion, operating margins over 42% and EPS of $1.36. Let me start now with the end market color. Our B2B revenue was up 11% sequentially and flat year-over-year, as strength across industrial and communications offset a sharp decline in automotive. Industrial, which represented 53% of revenue during the quarter, finished up 3% year-over-year. We experienced robust growth in health care, instrumentation test, and energy applications. This strength was moderated by weaker trends across our broad market and automation businesses. Communications, which accounted for 25% of revenue, achieved a record quarter. Revenue finished up 14% year-over-year, driven by double-digit increases across both wireless and wireline. This strength came from our leadership position in 5G wireless systems and our solid position in optical connectivity used in carrier networks and data centers. Automotive, which represented 11% of revenue, decreased 29% year-over-year with all applications declining due to global factory shutdowns and lower vehicle sales. And while no business is immune to the current environment, our BMS and A2B solutions fared quite well. BMS revenue increased sequentially and was down just modestly year-over-year due to our strong penetration across the ecosystem and increasing consumer preference for electric vehicles. And given the continued adoption of our A2B audio platform, A2B revenue has increased over 70% year-to-date despite lower vehicle sales. Consumer, which also represented 11% of revenue, was down 13% year-over-year. Relatively flat portable revenue was more than offset by double-digit declines in prosumer due to pandemic-related softness. We continue to expect 2020 to be the bottom for our consumer business. In addition to the end market commentary, we wanted to provide some insight by geography as we believe it is helpful to investors in this current climate. Most geographies declined year-over-year. We saw double-digit declines in Europe and Japan, while the decline in North America was less pronounced. The rest of Asia increased and China increased double digits year-over-year, largely driven by the robust growth in communications given our solid position as well as strength in industrial. Now moving on to the P&L. Gross margins returned to our model at approximately 70%, down modestly year-over-year from lower fab utilization. We've accelerated the planned LTC factory closings and have started to realize these benefits in the third quarter. We expect additional savings in the fourth quarter and will exit fiscal 2020 with nearly half of the $100 million savings in our run rate. OpEx was $402 million, up 3% sequentially yet down 8% year-over-year. We maintained a focus on controlling expenses, which included a one-week global shutdown during the quarter. OP margins finished at 42.3%, the highest level since the third quarter of 2018. Non-op expenses were $46 million, down $3 million sequentially and more than $10 million year-over-year driven by lower levels of debt and lower interest rates. Our tax rate for the quarter was approximately 11.5% and all told, third quarter EPS came in at $1.36. Now moving on to the balance sheet. We finished the quarter with over $1 billion of cash and about $5.6 billion in total debt. This resulted in a leverage ratio of 1.8 times on a trailing 12-month basis. Inventory dollars increased $22 million sequentially, but declined year-over-year. Days of inventory remained basically unchanged at 125. Channel inventory remains lean and is below the low end of our seven- to eight-week target range. Cash from operations was $557 million and CapEx was only $21 million as we proactively reduced CapEx spend in the current environment. This resulted in free cash flow of $536 million, up 8% year-over-year. Our long-term CapEx target remains the same at approximately 4% of sales. And as Vince mentioned, on a trailing 12, we generated $1.8 billion of free cash flow. Over the same period, we've returned around $860 million to shareholders via dividends and an additional $410 million via buybacks. This equates to a free cash flow return after debt reduction of nearly 80%, which is below our 100% return target as we paused our buyback program. Now I'd like to expand on Vince's commentary and discuss how our combination with Maxim will further enhance our financial profile. At deal announcement, ADI and Maxim had a combined pro forma leverage ratio of 1.2 times, which will decrease between today and deal close. The main driver being Maxim which is in cash accumulation phase. They will pay one more quarterly dividend before suspending it for four quarters and their buyback is on pause. Said another way, all the cash generation for the 12 months beginning in the second quarter of their fiscal 2021 will be added to the balance sheet. And for reference, over a trailing 12-month period, Maxim generated $730 million of free cash flow. ADI plans to continue to pay and grow our dividend. And as I mentioned earlier, our buyback program was paused during the height of COVID-19 and will remain on hold for now. When circumstances permit, our intention is to reinstate the program, which has nearly $2 billion remaining under authorization. Also, as we previously outlined, we plan on repaying $300 million to $500 million of debt in 2020. This quarter, we intend to honor that commitment by retiring our $450 million January 2021 note. This will save $13 million of annual interest expense. We believe the stronger balance sheet provides us with flexibility to improve on our 100% free cash flow return and increase shareholder value over the long term through a combination of reinvestment in the business, continued dividend increases, greater and more consistent buybacks, and targeted acquisitions. And now on to the fourth quarter outlook. Fourth quarter revenue is expected to be $1.44 billion plus or minus $70 million. This outlook considers our current understanding of the impact related to the recent legislation enacted on Monday. It's important to remember that this customer's revenue has been significantly reduced over the last year to a low single-digit percent of total sales. We anticipate B2B revenue to decrease modestly for the third quarter. Strong growth in automotive as well as growth in industrial is more than offset by a decline in communications. This decline in communications is related to a slowdown of deployment as we forecasted in the last call and the limited impact from the recent legislation. On a year-over-year basis, B2B revenue is forecasted to increase low to mid-single digits. We anticipate our operating margin to be approximately 42% plus or minus 100 bps. We're planning for the tax rate to be between 12% and 13%. And based on these inputs, adjusted EPS is expected to be $1.32 plus or minus $0.10. So now I'll close my remarks by stating that third quarter proved better than our expectations, largely driven by our conservative planning and aggressive execution. As we move through the integration planning process with Maxim, we remain fully committed to driving sustainable growth through cutting-edge innovation and a focus on our customer success. I'm going to pass it back to Mike now to start our Q&A.

Thanks, Prashanth. Okay. Let's get to our Q&A session. I'll listen to all your feedback about the – around questions and the number of questions on the call. So we're going to run this a little differently than normal. I ask that limit yourself to one question to allow time for additional participants on this call this morning. And with that, Cheryl, can we have our first question please?

Hi, guys. Good morning and congratulations on the solid results. I just want to follow up on the recent Department of Commerce ruling. Am I to read into that that you've embedded sort of zero revenue coming from that one customer? And just given how strong China has been as a region Vince, are you at all worried that there's been pull forward, or is that just a natural offshoot of that's the geo where a lot of 5G deployment is happening?

Yes, good question. Thanks, John. We have essentially accounted for our top customer in China as having zero revenue in our long-term planning. This customer has contributed low single-digit revenue over the past few quarters. We've also incorporated the latest regulatory changes into our forecasts. As of now, our largest 5G customer in China is not part of our planning, neither short-term nor long-term. Additionally, the strength we've witnessed in China, which Prashanth mentioned, can be attributed to the fact that China was the first country to experience the pandemic and the first to recover. The economy is growing rapidly and has been robust for several years. Overall, there appears to be a good balance between supply and demand across all sectors, with growth observed in nearly all markets except for automotive. Therefore, the strength we see in China seems to reflect the alignment between our business performance and the overall economy.

Perfect. Thanks guys.

Our next question please?

Thanks for taking my question and congratulations on the strong execution. I wanted to follow up on John's question about your communications business. And I was hoping Vince, if you could help us quantify how much communications could perhaps decline sequentially? And what are you baking in from this Department of Commerce regulation? And then, I think that the bigger question there is that as we look forward to next year, do you think global 5G deployments can stay on track if Huawei doesn't get access to U.S. technology? Like are we really contemplating a world where Huawei is not going to be a player at all in 5G deployment? And if there is such a world, does it still mean that 5G deployments globally can actually happen at the pace people were thinking about before? Any perspective would be very useful. Thank you.

Yes. Vivek, we're going to split that. And let me take the first part of it. So to clarify, third quarter we believe did not see any pull-ins from Huawei. Fourth quarter outlook reflects the guidance we gave you reflects the full impact for us of the Department of Commerce implications from earlier this week. So, all of that is now baked in. In terms of the amount of decline that we are expecting in the communications business, this is a lumpy business. We've said that consistently. It's growth measured in years and lumpy by quarter. We don't give forward guidance on an end market basis by quarter anymore. We haven't done that for a little bit of time. So, we don't want to start that now. But take it to understand that the movement in the communications business from third to fourth quarter was very much in normal operating lumpiness of the communications business and is not exacerbated in any way by what happened on Monday or Tuesday's announcement. And now I'll pass back to Vince for your more challenging strategic question.

Yes. So Vivek, I've been in this business a long, long time actually since the inception of 2G all those years ago back in the late 80s, early 90s and what I can tell you is that the patterns we're seeing in 5G are no different to what we've seen in 2G, 3G or 4G. And if you look at 4G specifically, just to give you a bit of perspective here, we grew albeit a very, very lumpy business as we always say, but we grew over the entire era of its build out by mid-single digits. We had more content than we had in the prior generations. We took more share. And we're actually even better positioned in 5G because, it's a more complex radio problem fundamentally. We have a lot more technology to put into the space from microwave and RF right down to the mixed signal. And now, we're attaching power also, so, another factor that we're beginning to see the emergence of. So today, 5G has really been about giving more bandwidth to the consumer, more throughput to the consumer. The future is about, I think, B2B more so than the consumer. And we're beginning to see I believe the early adoption of 5G in the factory automation area. In fact, I have verified that with some of our industrial automation customers as well. So, 3Q is definitely likely the highest revenue quarter this year, but there are lots of drivers at the secular level and the company level to keep us in good stead for growth over the long term.

Vivek, I'll add one thing to try to avoid the plethora of Huawei questions that I can tell are winding up. So we've given you a lot of context around that customer. We said they're a mid-single-digit customer. The legislation put in place was, we can ship for about half this quarter. So they'll be lower this quarter than normal. And going forward after that our expectation should be, it goes to zero. So our outlook for 1Q would be down for communications because of that.

The last couple of quarters have actually been low single digits. And as we've said now a couple of times, we are no longer factoring Huawei into our numbers.

Thanks for that.

Thank you. Sheryl, next question, please? Sheryl, are we still on the call? I guess not.

Yes. Thank you and congratulations, especially during these tough times. I had a question on sort of bookings linearity and backlog. I know last quarter you obviously entered the quarter with pretty high backlog and you were sort of discounting that. Are we sort of back to a more normal backlog level now for either you Vince or Prashanth?

Yes. Let me address that by discussing the order patterns. We experienced strong orders in May, a expected slowdown in June, and a stable month in July which exceeded our expectations. August remained relatively stable, even though it is usually a lower seasonal month. As we entered the third quarter, our backlog was lower but well-balanced with supply and demand. Looking ahead, we have stronger backlog coverage than usual. In the third quarter, we reported about $50 million worth of products that we were unable to ship in the second quarter, which we managed to fulfill, actually reaching closer to $100 million in total revenue tied to that backlog. Moving into the fourth quarter, we expect to see supply and demand returning to balance with backlog levels normalizing. Our guidance for the fourth quarter reflects this stronger backlog, but we must also note that our book-to-bill ratio is now below parity at the ADI level.

Thank you.

Thanks, Tore.

Ambrish, go ahead.

Hi. Can you guys hear me?

We can Ambrish. Yes.

Okay, Vince, I wanted to return to the strategic priorities, and I appreciate you providing context regarding the latest acquisition. This is a question I often hear, and I also find it puzzling because you acquired Linear and then Maxim on the power side. So my question, which you addressed regarding Linear, has a couple of parts. You've shared Hittite's growth compared to its past performance and how you've managed to improve that since the acquisition. So I'm wondering, how has Linear performed regarding the core business? I don't expect an answer every quarter, but I believe it's a relevant question given the Maxim acquisition. So, first, how has Linear performed since the acquisition? And this year was supposed to be when we would see revenue synergies. I know it's been a tumultuous year, and we all acknowledge that, but should we anticipate beginning to see revenue synergies from Linear due to all the ongoing efforts? Thank you.

Yes, thank you, Ambrish. We have already seen the positive impact of LTC on our growth figures. Currently, we have added more than 100 basis points to our baseline Linear growth rate. I believe we can potentially double the growth rate of LT in the long-term, considering the markets we are in and the product design cycles, which take at least three years to start showing real benefits, especially noticeable after five years. Right now, we have over 100 basis points of additional growth. If you examine our pipeline, which I mentioned earlier, we have a design win pipeline exceeding $0.5 billion. We have achieved wins in communications, both in wireless and data centers, as well as in automotive infotainment and radar, and battery management systems. There is strong demand for our integrated products, including our micromodule technologies in instrumentation tests. Despite the current global market challenges, we continue to achieve good design win rates. I am confident that we can increase our previous growth rates of 3% to 4% to a more sustainable mid to high single-digit growth level in the future. The evidence suggests we are on the right track to accomplish this.

Okay. Thank you.

Thanks, Ambrish.

Good morning, guys and congrats on the strong results. Vince, I had a question on your automotive business. Curious how are you thinking about the shape of the recovery in automotive over the next couple of quarters? Obviously, you've been impacted by your customer factory shutdowns and the demand situation post-COVID. But curious are you thinking it could be more of a V-shaped recovery, could it be more U-shaped? Any thoughts there would be super helpful? And if you can speak to your key applications within automotive, you gave great color on the July quarter but if you can talk about BMS A2B some of the key growth drivers for October and beyond that would be helpful? Thank you.

Thank you, Toshi. We are indeed witnessing a market recovery. Our book-to-bill ratio has surpassed one in all regions over the past month. We believe that our third quarter marks the lowest point in the cycle for us. The near-term recovery and increasing demand appear to be linked to factories resuming operations and a gradual improvement in SAAR. The nature of the recovery will largely hinge on the end demand for cars and the growth of SAAR. It will require sustained vehicle demand to return to pre-COVID levels, which we have not yet achieved. Factories are reopening, and demand is rising slowly. While it is difficult to predict the exact shape of the recovery, it seems to be somewhere between a V and a U shape, potentially already following a U trajectory with signs of an upswing. Electric vehicles have generally performed better in this market. As noted in our prepared remarks, there is a strong consumer preference for electric vehicles, making it the fastest-growing sector at this time. We continue to gain market share and have experienced quarter-on-quarter growth in this area. We are also pleased with our performance; A2B, for instance, has grown by approximately 70% year-to-date. The design wins we secured last year with most OEMs are beginning to translate into significant revenue. Additionally, we are implementing road noise cancellation technology that leverages our digital signal processors, algorithmic technology, and various supporting analog technologies. In summary, I believe we are in a slow recovery phase in the automotive sector. Although it is challenging to predict the outcomes for the next quarter or two, I anticipate that 2021 will be a year of growth for the industry and for ADI. This is my perspective at this point in time, and we are witnessing a gradual recovery across all our market segments.

Thank you.

Thank you. Next question please.

Hi, guys. Thanks for taking my question. I'm a little bit confused. I know you've been saying, we're entering into recovery, but how do I square that with a book-to-bill going forward that is less than one? I mean, is it just comm? Like, how should I be thinking about book-to-bill by segment? And what does that imply for like the longer-term trajectory?

Yeah. Great question, Stacy. The – so I would say that, certainly, the communications business is a piece of that. And I would also say that, we – when we look back at the demand activity over the last quarter or two, we feel very good that that was driven by very kind of real demand based on conversations with customers. But there was probably some level of inventory building that was going on in there given that the inventory levels at our end customers were so low. Coming into this pandemic, they had taken – end customers really at the industrial level had taken their inventory levels down pretty significantly in 2019. And then the pandemic hit. And so I think some of the strength that the industry is seeing now has a little bit of that renormalizing that. So as we kind of look forward into fourth quarter, there is a lot of opportunity for us. And I think that, the new order activity remains good over two, are declining. So it's – I think, we'll have to let another quarter or two roll out. We don't have enough visibility I think to tell you what the future portends. But we're not seeing a sharp decline in order activity, but it is below one.

Got it. But just to clarify – I'm sorry?

Stacy, we are guiding down sequentially. Our book-to-bill is slightly below one. So it does go in tandem with what we're saying. And you're right to think about the tele market. Comm is much below one, auto is a bit above one, industrial is around one. So it all lines up to what the guidance we gave and the range we have given.

Okay. Thank you, guys.

Thanks, Stacy.

Yeah. Good morning. Thank you for taking the question. I guess a cycle question. And if I look at your S-4, and you projected revenues in there for fiscal 2020, that roughly $170 million below what you're actually looking to accomplish here. And so curious, versus what you put there in the S-4, what led to the upside there? And is that something that we should think can continue beyond the October quarter?

The conversation timing was key. Looking back, the situation was very different during that period, as the pandemic was spreading rapidly worldwide. Our S-4 likely reflected the uncertainty we faced, but since then, we've gained more clarity.

Okay. Thank you.

We'll go to our last question please.

Yes. Thanks. Just a question for Vince, on the industrial market and really about the composition maybe in the next couple of quarters, so certainly medical has been strong instrumentation. The more cyclically oriented factory automation has been weak. Do you expect any reversal in some of that kind of by sub-segment performance as we move forward from here and the macro recovers?

We've observed that energy is a significant revenue generator for ADI, contributing a couple of hundred million dollars annually. This segment is performing well, and we are securing numerous new design wins. In the renewable energy sector, demand for our testing solutions has been robust, particularly supporting the 5G rollout and data centers. However, we are experiencing some softness in instrumentation related to capital expenditures. In aerospace and defense, which is a crucial aspect of our industrial segment, we are seeing some expected weakness in avionics, although this represents a smaller portion of our overall business. The largest segment of our aerospace and defense operations is defense, which remains strong, alongside growth in the space sector. Additionally, our automation solutions are performing better than anticipated. Looking ahead, we are optimistic about the future as our customers reevaluate their supply chains through onshoring and reshoring, which will likely lead to increased global automation. Overall, we are witnessing strength and recovery across nearly all sectors in the industrial market at this time.

Okay. Got it. Thanks.

Thanks so much, Craig. And thanks everyone for joining us this morning. A copy of the transcript will be available on our website and all reconciliations and additional information can also be found there. Thanks for joining us and your continued interest in Analog Devices.