Analog Devices Inc (ADI) — Q4 2022 Earnings Call Transcript

Good morning, and welcome to the Analog Devices Fourth Quarter and Fiscal Year 2022 Earnings Conference Call, which is being audio webcast via telephone and over the web. As a reminder, this event is being recorded. I'd now like to introduce your host for today's call. Mr. Michael Lucarelli, Vice President of Investor Relations and FP&A. Sir, the floor is yours. Thank you, Betsy, and good morning, everybody. Thanks for joining our fourth quarter and fiscal 2022 conference call. With me on the call today are ADI's CEO and Chair 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. On to disclosures. The information we're about to discuss includes forward-looking statements, which are subject to certain risks and uncertainties, as further described in our earnings release and in our periodic reports and other 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. 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. When comparing our results to our 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 and Chair, Vince. Vince?

Thank you, Mike, and good morning to you all. Well, I'm really extremely pleased to share that we delivered another record quarter, capping off what was a better year for ADI. Our fourth quarter revenue was $3.25 billion, and adjusted EPS was $2.73, both at the high end of our outlook. For the fiscal year, revenue was $12 billion, up an impressive 26% year-over-year on a combined basis. Our Industrial, Automotive, and Communications markets delivered all-time high revenues, and our Consumer business continued to grow despite industry-wide weakness. Adjusted EPS increased by nearly 50% to $9.57. We also delivered on our commitment to return 100% of free cash flow to shareholders in '22, returning $4.6 billion through share repurchases and dividends. These results exemplify the strength of our portfolio, but also our deep customer focus and the hard work of our employees to fortify ADI's brand. To that end, in my recent conversations with customers, the message has been very clear. While we're not immune to supply disruptions, ADI’s service, quality and support throughout this challenging time continues to be outstanding. Importantly, this sentiment is shared by customers of all sizes and across all markets. As a result, our customers are calling upon ADI to engage in longer term, more strategic collaborations to develop solutions that further empower the intelligent edge. So to ensure we remain at the forefront of technological advancements and customer service, we invested $1.7 billion in R&D and $700 million in CapEx in FY'22. Now let me start with R&D. Our investments are targeted at strengthening our foundational high-performance Analog franchises as well as moving up the stack to create more complete solutions for our customers. A prime example is our Apollo platform, which we previewed at our Investor Day in April. Apollo is a flexible high-speed signal processing platform with unmatched levels of functionality, integration and performance, making it ubiquitous for all customers, especially appealing to those in the broad market. During the quarter, we began sampling this innovative platform with our aerospace, communications and instrumentation customers and their feedback has been extremely positive. Turning now to the operations side. Over the last year, we invested a record amount of CapEx to increase our manufacturing output. And in 2023, we are once again investing aggressively in our U.S. and European factories to significantly expand our capacity. These investments will create a more flexible and cost-effective hybrid manufacturing model by increasing our swing capacity to around 70% of revenue in the coming years. Our R&D and supply chain investments are essential to support our design win pipeline, which expanded by more than 10% in '22. This growth was led by our automotive energy systems and digital healthcare businesses. Notably, our growth in Automotive was underpinned by battery management systems, or BMS, which now has an opportunity pipeline nearing $4 billion. This year, eight new manufacturers designed in our BMS solutions, including two that plan to utilize our wireless platform. Our strong leadership position combined with increasing EV penetration globally, gives me great confidence in our future growth prospects. Looking now at some selected design activity in the quarter. In industrial automation, we were designed into an advanced diagnostic system that monitors machine health at a global supplier for energy exploration. Our system solution approach enables an approximate 50% reduction in size and lowers wiring costs meaningfully. In aerospace and defense, we won RF module programs at multiple defense prime contractors. Our modules integrate hundreds of components to simplify the design process for our customers, while increasing our content from hundreds to thousands of dollars per system. In industrial instrumentation, we secured wins at two market leaders of next-generation high-voltage testers for electric vehicles and renewable energy systems. The combination of our high voltage processes and precision technology enables us to deliver accurate, reliable, and efficient testing required to scale the manufacturing of these systems. And lastly, in Communications, we expanded our leadership in 5G radio systems with our transceiver portfolio winning additional share at key suppliers. These new wins position us even better as 5G networks roll out globally, especially in India, and ORAN begins to proliferate. Importantly, our design pipeline is beginning to benefit from cross-selling our ADI and Maxim portfolios. This positions us on a path to achieve our target of $1 billion in revenue synergies. For example, at a European auto manufacturer, we built upon our strong audio connectivity position to cross-sell our high-speed GMSL technology, connecting their advanced driver systems. We're also capturing new opportunities with GMSL in the Industrial market. Last quarter, for example, our technology was designed into autonomous order fulfillment systems at one of the largest e-commerce companies. We're also making great inroads with our broader power portfolio, where our opportunity pipeline increased by double digits last year. Our increased breadth is helping us to better match customers' performance and power trade-offs across more applications, expanding our power SAM to nearly $10 billion. For example, at a leading European industrial customer, our position in mid-voltage power for distributed I/O control systems enabled us to pull through additional power content and precision signal chain sockets, thereby doubling our content per system. Our expanding pipeline and significant revenue synergy opportunities instills greater diversity and resilience into our business, while adding new growth vectors. And taken together, I'm confident in our ability to bend the growth curve and move from our historical mid-single digit growth rate to our long-term model of 7% to 10%. So in summary, while the macro crosscurrents are creating an abundance of uncertainty, ADI has successfully navigated many slowdowns over the course of our 57-year history. The strength of our franchise allows us to invest through business cycles, ensuring we continue to deliver breakthrough innovation, deepen our relevance to our customers and capture the emerging secular opportunities at the intelligent edge. And so with that, I'll pass you over to Prashanth.

Thank you, Vince. Let me add my welcome to our fourth quarter earnings call. My comments today, with the exception of revenue, will be on an adjusted basis, which excludes special items outlined in today's press release. We closed fiscal 2022 as our second consecutive year of record revenue and profits. We delivered sequential growth each quarter, achieving a new all-time high of $12 billion in revenue; gross margins of 73.6% increased 270 basis points due to favorable product mix, stronger utilization and cost synergies; operating margin of 49.4% increased 700 basis points, reflecting strong execution on OpEx synergies; and adjusted EPS increased nearly 50% to $9.57. For the fourth quarter, revenue was $3.25 billion, finishing at the high end of our outlook. As I cover the performance by end market, both for the quarter and full year, my growth comments are on an adjusted combined basis where applicable. Industrial, our most diverse and profitable end market hit another all-time high and represented 51% of quarterly revenue. Growth was broad-based with each major application increasing sequentially and year-over-year. For the year, Industrial expanded 29% with growth in each business. Notably, digital healthcare was up over 30% and has now achieved seven straight record years. This consistent success in healthcare underscores the breadth of our ICs and subsystem solutions in a key secular growth market where such performance is critical. Automotive, which represented 21% of quarterly revenue, achieved another record year, growing both sequentially and year-over-year. For the year, Auto was up 31%, a favorable mix of premium vehicles, our growing BMS, GMSL, A2B and functional safe power franchises, combined with enhanced value capture drove significant growth compared to SAAR. Together, these franchises of BMS, GMSL, A2B and functional safe power represent over $1 billion of Automotive revenue. Communications, which represented 15% of quarterly revenue, achieved another record quarter with strong sequential growth in wireline, while our wireless business was about flat. For the year, Comms grew 27%. In wireless, our strong position in radio signal chains is enabling the 5G rollout globally. And in wireline, our optical and power portfolios benefited from the continued demand for bandwidth. Lastly, Consumer represented 13% of quarterly revenue and was up modestly sequentially and flat year-over-year. Despite a challenging year for the broader industry, Consumer finished up 8%. This growth is a testament to how we have diversified our Consumer business and the innovation premium our products command. Today, approximately 30% of revenue is derived from long life cycle prosumer applications, including next-gen conferencing systems, professional AV and home theater, while the remaining revenue in Consumer relates to the faster-growing wearables and hearables as well as premium smartphones. Now I'll move down the P&L for the fourth quarter. Gross margin was 74%, up 310 basis points year-over-year driven by favorable product mix and synergy capture. OpEx was $744 million, down slightly sequentially due to the realization of additional synergies. And operating margin increased 800 basis points year-over-year, finishing at a record 51.1% as we exited the year with roughly $350 million of synergies realized across OpEx and cost of goods in our run rate. This incredible pace of synergy capture would not have been possible without the dedication of our integration office and the cross-functional teams that supported them. Non-op expenses were $57 million, and the tax rate was 12.2%. All told, adjusted EPS came in at $2.73, up 58% year-over-year. Moving on to the balance sheet. We ended the quarter with approximately $1.5 billion of cash and equivalents and our net leverage ratio continues to remain below 1. Days of inventory increased to 140 while channel inventory was once again below our target range of 7 to 8 weeks. Let me provide some additional details on our inventory. But first, during these uncertain times, we believe it is prudent to temporarily hold more finished goods on our balance sheet instead of shipping into the channel. This provides us with enhanced flexibility to better align supply with end customer demand across regions and markets. Second, raw material and WIP are increasing as we begin to rebuild our die bank. Over the last couple of years, our die bank was drastically reduced. And in some cases, sits 50% below optimal levels. Die bank inventory is highly cost-efficient and it's critical for customer service as it can be used for different markets and customers. We believe higher inventory is crucial to reducing lead times as we look to return to our 4- to 8-week target service level over time. Given these actions, we expect inventory to increase in the near term before trending back down as we balance die bank rebuild with finished goods depletion. Moving to cash flow items. CapEx was $305 million for the quarter and $699 million for the year or 6% of revenue. As we outlined at our Investor Day, we expect elevated CapEx through 2023 at around high single digits as a percentage of revenue. For fiscal 2022, we generated $3.8 billion of free cash flow or 31% of revenue. This is lower than normal given our higher capital intensity and one-time transaction and restructuring costs. These near-term headwinds were not unexpected when we outlined our long-term free cash flow target at our Investor Day and we remain committed to growing free cash flow to 40% of revenue. As a reminder, we target 100% free cash flow return. We aim to grow our dividend at a 10% CAGR through the cycle with the remaining cash used for share count reduction. And during the year, we returned more than 100% of free cash flow to shareholders. We repurchased $3.1 billion in shares, reducing share count by nearly 4%, while paying $1.5 billion in dividends. So let me close with a brief update on the current operating backdrop. As we noted last quarter, the uncertain and slowing macroeconomic environment has had some impact on demand. However, after a couple of months of slowing orders, we saw bookings stabilize during the quarter at what we'd consider relatively normal levels for entering our first quarter. Not surprisingly, bookings remain the strongest in the Industrial and Auto, while Communications and Consumer are weaker. We're guiding first quarter revenue to $3.15 billion, plus or minus $100 million. Given this environment, we thought it might be helpful to be a little more prescriptive in our outlook by market. So in the first quarter, we expect Auto to be up slightly sequentially; Industrial about flat; Comms to decline by mid-single digits; and Consumer to be down double digits sequentially. At the midpoint of our outlook, revenue will be up high teens year-over-year and our B2B markets increasing over 20%. Op margins are expected to be 50% plus or minus 70 bps. The tax rate is expected to be between 12% to 14%. And based on these inputs, adjusted EPS should be $2.60 plus or minus $0.10. So stepping back, we are well positioned in the near term, but the environment remains highly variable and dynamic. ADI, like the rest of the industry, is not immune to a softer macro environment; and thus, we remain cautious, yet optimistic. Longer-term, we have over a year of backlog and continued momentum in our pipeline. We also have high flexibility with our hybrid manufacturing model and several OpEx levers in our toolkit to support our industry-leading margins and maintain robust cash returns to shareholders. So let me now pass it back to Mike for the Q&A.

Thanks, Prashanth. Now let's get to my favorite part of the call, the Q&A session. We ask that you limit yourself to one question in order to allow for additional participants on the call this morning. If you have any follow-up question, please queue and we'll take your question if time allows. With that, can we have our first question, please?

Yes, thank you, and congratulations on another record quarter. Vince, a question for you. When you talked about the design wins, some of the design win activity, we continue to hear more and more of the system solutions. And I was just wondering if you could add a little bit more color on how your growth is being driven by higher ASPs? So I'm not suggesting higher pricing, right? I'm talking about higher ASPs because all of your products, obviously, moving up the value chain to more of a system solution type perspective.

Thank you, Tore. Looking at our average selling prices compared to the Analog sector, we currently have a threefold advantage. Against our nearest competitor, we see a fivefold advantage, and this gap has been widening over the past few years. We recognized some time ago that in the markets and applications we prioritize, it was essential to simplify the growing complexity our customers face in their product development processes. Therefore, we've integrated this complexity into ADI, emerging on the other side with high-quality innovations and the capability to combine various aspects of our portfolio, particularly in areas like power management. We're constructing advanced 3D stacked module systems, which can have average selling prices reaching into the hundreds of dollars. The same principle applies to our 5G radio systems, where we integrate microwave technology, data conversion, power, digital algorithms, and more. Within our company, we value the diversity of our technologies, solutions, and customers. Ultimately, the way we choose to execute our business model results in higher average selling prices compared to our competitors.

Go to the next question please.

Thank you for taking the question and happy early Thanksgiving. I guess I was hoping to probe a bit more around the cautious but optimistic view. You talked about orders stabilizing and a backlog that extends out 12 months. So I guess, first question, can you talk about what kind of scrubbing you've done on that backlog? And then secondly, based on that, how does that inform your outlook heading into fiscal '23?

Let me take that and help give some color on the demand, order booking. So if you step back and think about last year, the first half of the year, we had orders at historical highs. And then last quarter in the earnings call, we called out that orders are beginning to slow, and that a decline actually continued into the fourth quarter. However, we saw orders start to stabilize about midway through the fourth quarter and into the first couple of weeks here of the first quarter. So there was bookings our strongest in Industrial and Auto, not surprising and weaker in Comms and Consumer, which I reflected in the guide. From a geo standpoint, we'd say that not surprising. We're seeing weakness in Asia, especially China, but North America and Europe are holding up well. So given the combination of orders stabilizing and the backlog coverage that we have out, we feel pretty good about the near term. There is uncertainty out there, and things could change fast, but that’s sort of what's driving our sort of cautious optimism.

Yes. One other thing, C.J., to note. We've said before, the signal we watch most carefully in terms of really trying to understand demand is sell-through rather than sell-in. So that, I think, gives us a deeper degree of reality and the match between true demand and supply.

I actually wanted to follow up on that question. Vince or Prashanth, are you surprised why your orders and bookings are holding up better, even though all the headlines we see from a macro perspective seem to be getting tougher? So what is helping you? And then specifically within your Industrial business, is it fair to think that factory automation is perhaps the most macro exposed part? And if yes, how should we think about that specific part of your most macro exposed segment within the Industrial business going into next year?

Yes. So, well, let me start with the automation question. I've talked about a lot of the automation customers over the last while. And there continues to be, I would say, bullish expectation. I mean they're not immune from the macro. I think some of our customers are experiencing some soft cancellations in their business. But if you look at what's happening, we're going to see the life sciences transform. We're in the early stages of small batch processing in life sciences for manufacturing, for example. The energy sector is another area where, particularly the American, the U.S.-based automation customers, a lot of their businesses have a very large portion in the energy sector, oil and gas, for example, and that is likely to remain strong. So if that's a bedrock. I think that will remain strong for several years to come. We are seeing onshoring, reshoring. We're seeing the movement of manufacturing, first time in India for the first time in a serious way. So my sense is, the industry won't outrun the macroeconomic conditions. But overall, I think the landing in terms of where demand will be softer than probably normal.

Yes. First, I want to emphasize that all subsegments in Industrial grew in the fourth quarter, and we are optimistic about our position. In terms of strength in Industrial compared to other markets, there are two key points. Firstly, as we noticed demand softening in other markets, we leveraged our hybrid model to source more wafers from external partners, directing that additional supply into the industrial market, which has proven to be resilient and strong. Additionally, we made an early decision during the supply disruption to prioritize our broad market and smaller customers, who are primarily in the Industrial space. From a demand perspective, the strength and resilience in Industrial reflect our market position, where we hold a significant share. It’s worth mentioning that some of our peers have reported challenges in what they refer to as consumer industrial. In contrast, we categorize that segment under consumer, labeling it the prosumer business, which includes professional audio and video. Therefore, when comparing ourselves to our peers, our Industrial segment may be more focused on pure Industrial.

Yes. For the past 12 to 13 years, we have considered Industrial to be the foundation of the company, prioritizing it for research and development investments and customer interactions. We have never been more diverse in terms of geographic reach, customer base, and level of engagement. Additionally, our product life cycles extend over decades with very stable pricing. All these factors contribute to making this an exceptionally strong business, and we are very optimistic about the future as well.

Thanks for taking my question and let me echo Happy Thanksgiving. I wanted to ask about inventory levels and thank you in the prepared remarks for all the color there. I really understand the finished goods and die bank dynamics, along with the lean channel levels, but I was wondering at what range would we be at the point where you'd have to start taking proactive measures to lower inventories? I fully realize you haven't given an inventory target. But can you help us just directionally understand how you're thinking about that?

So let me start with the fourth quarter. Balance sheet days are up to about 140 and the channel is flattish, and it's still below our desired 7 to 8 target. So the growth in inventory that you're seeing in our balance sheet is coming from a couple of different drivers. Certainly, inflation for our cost of goods, sales growth, which requires us to have more coverage of inventory and then the strategic decisions we made in the prepared remarks. So I do just want to go through that one more time here. So we are temporarily going to hold more finished goods versus putting it into the channel. Because we believe that gives us the flexibility to align the supply with end customer demand across regions and markets. A bad outcome for us would be to give product to a particular distributor who doesn't have an end customer demand for that product, where someone else in a different market or geography is in need. Second, the die bank has really been dried out over the last couple of years. And I think I said, at some levels it's below 50% of where we want it. So die bank for us and for folks who may be less familiar with it, this is a product that has finished the front end, but before it goes to assembly and test. This allows us to get it through the back end in roughly four weeks. So it's quick turn, and it gives us maximum flexibility to put it across different markets. So investing in the die bank will help us get our service levels, which are critical for us given the focus we have on customer service, critical for us to get those levels back up. So the result is, expect higher days in the first half, and then it will trend back down as finished goods burn out and the die bank comes to where we would like it to be. So our goal for the inventory is to get our lead times down to our old target, which was roughly 90% of our goods can be shipped within 4 to 8 weeks. And given the long life of our products, we always carry a pretty minimal risk of obsolescence.

Thanks, Prashanth. And Josh, one thing to add, you asked about utilization when we think about taking them down. One thing I wanted to point out is about our swing capacity and cross-qualification. So before we pulled down our internal utilization, we'll bring what we can back in from external, internal to support utilizations and our gross margins.

I'm going to ask the same question. I think we're all struggling with it. You received a lot of recognition for being very transparent during the last earnings call regarding order trends. I believe Vivek asked the right question about whether you were surprised and if there is seasonality involved. There is no doubt about your strong positioning in your chosen markets. Thank you, Prashanth, for clarifying the difference between prosumer and what other companies refer to as legacy industrial. However, is there also a seasonal factor that stabilizes orders? This seems to contradict what we're hearing from other companies, including many in the industrial sector. Last time, you mentioned that while order cancellations were very small, you expected them to increase in the current quarter. I would appreciate more detail on that. Also, could you provide a quick update on lead times?

Sure, let me comment on cancellations. We tracked cancellations as a metric in the third quarter to provide context regarding an inflection in our orders, as part of our commitment to transparency. However, I don't intend to report cancellation data every quarter. If it were significant, we would have addressed it specifically, which we didn't. You can interpret that accordingly. Unlike others in the industry, we are actively examining our backlog and collaborating with customers to eliminate unwanted orders due to the rapidly changing environment. This strategy allows us to identify cancellations and better align our backlog with current demand, providing us improved visibility into supply needs and production requirements. Consequently, this has boosted our confidence in the quality of our backlog. Although the coverage still exceeds a year, it has decreased sequentially. While we remain aware that there may be some ongoing fluctuations in that backlog, we feel optimistic about both our guidance and the near-term outlook.

Yes. I think the diversity, well, Ambrish, of the business in general is stronger than it's ever been. We're getting benefit. We're winning share in the power management market, that sector of our portfolio. And I think if you look at where we are in the Automotive sector, where we're getting a very strong tailwind from the electrification of the vehicle. In fact, we're gaining a lot of share in general, I think, within in-cabin and the electric vehicle. So I think we've got some tailwinds that are transcending the macro cycle here as well. The only part of the business I would say that has a cyclical timber to it now is the Consumer area, where we have seen kind of the normal pattern there at the tail end of the year.

Regarding lead times, they have actually decreased in the last quarter. However, they remain very high and above our desired levels. Prashanth mentioned our intention to increase inventory to help reduce these lead times. Some products are delivered on time, while others have lead times of up to 52 weeks. Overall, lead times have improved from the third quarter to the fourth quarter, which is reflected in our outlook, backlog, and cancellations.

I had a quick housekeeping question and then a broader one. The housekeeping question, you had an extra week in Q1 '18. So Q1 '23 would be five years later. Is there an extra week in the guide at all? And on the broader question, you talked about some of the OpEx levers that you have. I think last quarter, you talked about like in a 15% revenue down year, you could keep gross margins above 70. I guess the question is do you still believe that? And what would OpEx do in a scenario like that? What are some of the levers you would pull?

Stacy, I'll do the housekeeping. No, I guess our outlook is very, very strong, given you thought it would be a 14-week quarter, it's not. Our first quarter in '23 is a 13-week quarter. Our next 14-week quarter will be in 2024. So to repeat, the outlook for 1Q is a 13-week quarter.

Thank you for your question regarding the downturn scenario analysis. To reiterate, we have established a gross margin floor of 70% because we are confident in our ability to maintain that level, thanks to the flexibility of our hybrid manufacturing model and the resilience of our business. Testing has shown that even with a 15% decline, we can comfortably remain above that 70% margin. Additionally, about 80% of our operating expenses are fixed or have low variability, allowing us to manage the remaining 20% to ensure we keep operating margins above 40%. For 2023, we are committed to investing in the long-term health of the company while staying responsive to the market environment. If we observe any changes that require action, we will respond accordingly, but we expect to make decisions that prioritize the long-term success of the business in the upcoming quarter.

It sounds like OpEx ticks up a little bit into Q1 as well, just based on what you just said?

You read it well, Stacy.

I'm hoping to hit on the inventory question yet again. You've done a very straightforward, good job of explaining to us what's going on in your own inventory. And it sounds like distribution is still below your target even though on their balance sheets across all their suppliers, it looks like they're elevated. But we've seen other parts of the supply chain, in particular, the manufacturing services companies, which I imagine are a big percentage of sort of your counterparty sales on transactions. And I'm wondering to what degree you've scrubbed that half channel, half customer, however you want to look at it, for inventory that could hurt demand going forward?

Thanks, Will. That’s a great question. To address the first part, our sell-in is effectively on par with our sell-through. We are well aligned from a channel perspective, and our partners are not accumulating excess inventory. I've noted that we are maintaining some finished goods on our balance sheet. On the customer side, Vince has had numerous discussions with our clients, so I’ll let him share what insights he’s gathered.

I don't believe our customers are currently focused on building safety stocks. There are some mismatches present, and while the situation has improved compared to six months ago, there isn't a significant inventory build happening at the moment. Customers are striving to align their orders with product supply to create finished goods, but they're not quite there yet. There remains some unfulfilled demand that customers are trying to address. We are closely collaborating with our customers, taking signals from sell-through, and working diligently across all 125,000 of them, regardless of size, to ensure a good match between their needs and our delivery capabilities. Generally, we have not met all the demands from our customers yet, but we have been transparent, and our customer service has received positive feedback. This positions us well as we move beyond the supply constraints, allowing us to strengthen our partnerships with customers in both research and development and supply chain areas. Customers are showing increasing interest in collaborating with companies like ours on both fronts, and we are prepared for that engagement.

And we're seeing growth in the pipeline.

And we go to our last question, please?

I had one quick housekeeping question and then another broader question. In terms of the housekeeping question, I was curious what did pricing do in fiscal year '22 on a pro forma basis? I think the business grew, what is it, around 25% pro forma. How much of that was pricing? And as you think about fiscal '23 or calendar '23, is the expectation for foundry costs to increase in the out-year as well? And then my broader question is probably for Vince. As you think about the full year '23, based on your backlog, based on your design wins and customer conversations, which end markets or applications are you most excited about in terms of contribution to growth? I realize you run a diverse business, and that's the beauty of ADI. But if you were to single out a couple, where your expectations are the highest, which ones would they be? And which end markets or applications would you be most worried about?

Sure. Thanks, Toshiya. Let me take the first one quickly. So for '22, growth was fairly balanced and about half of that is coming from ASPs. But I do want to emphasize something that we've said over the course of all of '22, we passed cost through to customers. We did not use that environment to raise our gross margins. That was how we did the calculation of how much price to pass on to a customer was based on the input costs that were relevant to those customers. So with that, I'll let Vince take the more interesting part.

Yes. Thanks, Prashant. So yes, I think in terms of '23, the markets that have been performing very, very well for the company over the last couple of years, particularly Automotive, which we've already talked about; the electrification of the vehicle, we're very, very well positioned there. And we're winning a lot of share in the in-cabin electronics as well, the new display systems, which are very, very complex. The dashboard displays need a lot of very clever power electronics. So we're well positioned. From an Industrial perspective as well, digital healthcare has been growing at the company in double digits for over the last 7 years or thereabouts. We expect to see that continue. Also, aerospace and defense, that's likely to be a very brisk business. It's performing well for ADI now, and I believe, at least for the next 5 years, we will see stellar growth in that area. And energy, our energy and sustainability businesses are also beginning to really go on the uptick. So where am I concerned? I'm not really concerned about the business in general, given the diversity that we have, diversity of customers, products, applications. 5G, perhaps, we'll see what is likely to be weakness in Europe, offset by growth in India, growth in ORAN, steadiness in the U.S., and that kind of summarizes how we think about things.

Thanks, everyone, for joining us on the call this morning. Prashanth and I will be at CES this year hosting meetings. We also have a booth on the showroom floor where we have technology demos across auto, healthcare, and consumer. We hope to see you there. And with that, have a great Thanksgiving, and thanks for joining the call.