Analog Devices Inc (ADI) — Q2 2023 Earnings Call Transcript

Thank you, and good morning, everybody. Thanks for joining our second quarter fiscal '23 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 statements and schedules at investor.analog.com. On to the 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 other periodic reports and other materials filed with the SEC. Actual results could differ materially from these forward-looking statements, and 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 commentary will also include non-GAAP financial measures, which exclude special items. We're comparing our results to our historical performance, and 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.

Thanks, Mike, and good morning to you all. Well, I'm very pleased to share that ADI continued to execute well in the second quarter. We delivered our 13th consecutive quarter of revenue growth and record earnings per share. Notably, revenue was $3.26 billion, growing 10% year-over-year. And once again, this was driven by record results in our industrial and automotive sectors. Gross margin was nearly 74% and operating margin surpassed 51%, reflecting the innovation premium our portfolio commands and our strong financial discipline; and EPS increased an impressive 18% year-over-year. Now I'd like to spend a moment on the current business conditions. We previously shared that our business was at an inflection point due to uncertain economic and geopolitical backdrop. After three years of steady growth, customers are beginning to adjust their forecasts and rebalance their inventories. This is most pronounced in Asia, while North America and Europe demand is moderating, but at a more measured pace. We expect this normalization of revenue will persist through the second half of 2023. Importantly, given our customer conversations and proactive decisions to improve lead times and right-size our backlog, we're in a position to deliver on our goal of a soft landing. Stepping back, we've successfully navigated macro challenges many times before. Today, ADI has an even more durable franchise, defined by an unmatched diversity of products, customers, and applications. A hybrid manufacturing model that better adapts to demand fluctuations, and of course, a fortified balance sheet. These characteristics instill a resiliency that helps ADI mitigate market weakness and invest through economic cycles in critical areas that will define our future. Notably, unlike previous economic cycles, we have numerous concurrent secular growth drivers across all of our markets that drive more semi-content per dollar of CapEx. And we have exposure to sectors that will transcend the macro uncertainty, including areas like digital healthcare, aerospace, defense, and the electrification ecosystem. So to that end, I want to highlight our digital healthcare business, which resides in our industrial end market. Healthcare is a market that is ripe for renovation and it's one that requires the highest levels of performance. Now currently, the United States leads the world in healthcare spending with more than $4 trillion spent in 2022 alone, approaching 20% of GDP. This amount has steadily increased over several decades, and unfortunately does not correlate to the world’s leading health outcomes. Both the U.S. along with most international healthcare systems are still reliant on serving the majority of patients with critical or chronic conditions in large, centralized, acute-care hospitals, where specialized expertise and equipment resides. The pandemic highlighted the fragility of the system, underscoring the urgent need for remote physician consultation and distributed clinical-grade patient care. This vision of a decentralized system to improve the accessibility, affordability, and efficacy of global healthcare can only be realized through the proliferation of edge-based diagnostic and therapeutic technologies. ADI saw this promising opportunity early and made digital healthcare a strategic focus area over a decade ago. Over that time, our R&D investments have expanded our portfolio from core signal processing, sensing, and power technologies to more highly integrated application-specific products to now full system-level solutions. The result, our healthcare franchise has delivered seven straight record revenue years, generating $900 million annually and we're on track to achieve a new high watermark in '23 despite the macro backdrop. Importantly, ADI has become an industry leader in three primary areas. The first is medical imaging, where our highly integrated products perform critical functions. This includes enhancing image quality, minimizing radiation dosage, improving system assembly, and simplifying field maintenance. Today, we have strong share positions in areas like CT scanners, digital X-ray, and ultrasound. Next is automation and instrumentation. For example, our broad portfolio enables us to create the optimized signal chains required in applications such as infusion pumps, ventilators, and defibrillators. Third is personal health monitoring. Here, our highest performance products are used throughout the operating room and the ICU, while more compact versions with lower power are designed into wearable devices performing both clinical and consumer wellness monitoring functions. Now let me share some examples of how we're seeing ADI's solutions shape the future of healthcare. The ultrasound industry is migrating from large cart-based equipment to more compact mobile systems. Recently, ADI won the design as a market leader for their compact ultrasound system. Our solution leverages our complete portfolio including high-speed signal chain and high voltage power technologies, to deliver the highest quality images at the lowest power in a smaller footprint. We're also developing an echo to bits technology to untether the ultrasound modality from the hospital and enable hospital-grade care in even the most remote locations. Our solution uses proprietary ultra-low power analog technology that performs both the data acquisition and beamforming functions at extremely low power levels with embedded software algorithms. This allows the user to get cart-based performance in a handheld form, without compromising image quality, resolution, or functionality. Now turning for a moment to robotic surgery. Currently, only about 15% of the world's surgical procedures use robotic technology despite the many benefits. These include greater precision, flexibility, and control during surgery, and shorter hospital stays, fewer complications, and lower levels of pain for patients. We already designed in, at the largest robotic surgical suppliers with our suite of precision motor control, signal processing, power management, and sensing solutions. And with content per system in the thousands of dollars and performance demands increasing exponentially, this application is poised to deliver significant growth in the years ahead. In the area of personal health monitoring, clinical-grade vital signs monitors are converging with consumer wellness wearables. Now this is an emerging market for our comprehensive suite of technologies, including our sensor AFEs, microcontrollers, and ultra-low power technologies, which has been strengthened by the integration of Maxim. For example, in diabetes management, ADI has long been a leading supplier of blood glucose monitoring technology. Now we're working with key customers on the next generation of continuous glucose monitoring. Our solution increases the level of robustness, accuracy, and power efficiency of the glucose sensor, thereby extending its life from days to weeks. And there is much, much more to come. We are extending our reach into innovative medical products that connect our hardware with cloud-based connectivity, analytics, and service. I'm delighted to share with you that our first non-invasive chronic disease management device is undergoing marketing clearance with the FDA, and I look forward to sharing more as this new market has the potential to significantly expand our healthcare segment. So big picture, we're shaping the digital revolution in healthcare. ADI's ability to go from component to system supplier underscores our deep domain expertise and unrelenting focus on innovation. Setting us apart from the pack, not only in healthcare, but in all of our markets. So while there is near-term uncertainty, we are excited about the long-term opportunities that lie ahead. The center of gravity for data processing is shifting from the cloud to the edge. And ADI, where data is born is at the center of this evolution, enabling the next waves of innovation for our customers. Now before I hand over to Prashanth, I want to address our announcement that he will be leaving ADI at the end of the fiscal year. I want to recognize Prashanth for his many contributions and for his partnership over these past six years. He has played an important role during a period of extraordinary growth and value creation for ADI, including helping build a robust finance function and fostering strong investor community engagement. Please know that Prashanth will be remaining in his full capacity and continuing to engage with all of you while we identify our next CFO through a search process that is now underway. And with that, I'll hand it over to Prashanth.

Thank you, Vince. It has been an honor to serve as the CFO of this phenomenal company and lead this world-class finance organization. As Vince mentioned, I'm fully committed to ensuring a smooth transition and I look forward to engaging with all of you during the coming quarters. I do want to express my deep appreciation to Vince, both as a coach and a mentor, but also for introducing me to this magical world of semiconductors. As my boss often says, we truly are the bedrock upon which the global technology industry is built. Now turning to our second quarter results. As usual, my comments today with the exception of revenue will be on an adjusted basis, which exclude special items outlined in today's press release. We delivered another very strong quarter, record revenue of $3.26 billion, exceeded the midpoint of guidance, and represented ADI's 13th consecutive quarter of sequential growth. On a year-over-year basis, we grew 10%, led once again by all-time highs in industrial and automotive. Breaking it down by market, industrial, our most diverse and profitable business represented 53% of revenue and finished up 3% sequentially. Year-over-year growth of 16% was broad-based, notable gains in sustainable energy, aerospace and defense. These markets in addition to healthcare, which Vince just highlighted, are much better positioned to withstand cyclical slowdowns and together they represent roughly 40% of industrial revenue. Automotive, which represented 24% of revenue, once again exhibited broad-based strength, growing 10% sequentially and 24% year-over-year. Secular tailwinds fueling content growth continue to drive ADI's leading battery management and in-cabin connectivity solutions, which combined increased nearly 40% year-over-year. Communications, which represented 14% of revenue, decreased both sequentially and year-over-year, due to the ongoing inventory corrections across this end market. And lastly, consumer at 9% of revenue was down more than 20% sequentially and year-over-year. After several quarters of softness, consumer revenue is close to its COVID low, suggesting that the correction is nearly complete. Moving on to the P&L. Gross margin of 73.7% was up slightly sequentially due to favorable product mix. OpEx at $733 million was in line with last quarter and op margins of 51.2%, up roughly 100 basis points year-over-year set a new record. Non-Op expenses were $48 million, and our tax rate was 11.4%. Remember that Q2 is typically our lowest rate. All told, EPS came in at $2.83, up an impressive 18% year-over-year. Moving to the balance sheet, we ended the quarter with approximately $1.2 billion of cash and a net leverage ratio of 0.8. We've discussed many times our decision to hold more finished goods inventory versus restocking the channel. Thus, our days of inventory increased to 168, and channel inventory weeks were basically unchanged. As we outlined a quarter ago, we expect inventory dollars will decline in the second half as we balance the replenishment of die bank and moderate external purchases. Moving to cash flow. CapEx was $284 million in the quarter and $930 million over the trailing 12 months, representing 7% of revenue. As a reminder, we outlined at our Investor Day that we expect CapEx to be high-single digits as a percentage of sales in 2023 and then decline in subsequent years to our longer-term target of mid-single digits. These investments will support our long-term growth plans and enable strategic swing capacity between our fabs and our foundry partners. The flexibility of our hybrid model across different geographies enhances our resiliency. It offers our customers additional optionality and it provides an important financial shock absorber during times of volatility. Of note, our CapEx spend to date does not include the benefits of both the U.S. and the European tax credits and grant funds that we anticipate from both the U.S. and European CHIPS Acts. Over the trailing 12 months, we generated $4 billion of free cash flow, or 31% of revenue. We've returned $5.1 billion to shareholders, $3.5 billion in buybacks, and $1.6 billion via dividends. We remain committed to our shareholder-friendly policy of returning 100% free cash flow over the long term. Now before moving to the outlook, I do want to provide some additional details on the evolving business conditions. As Vince shared in his remarks, customers are adjusting forecasts and rebalancing inventory. At the same time, our lead times continue to improve with over 70% of our portfolio now shipping in under 13 weeks. This gives customers high confidence in the timeliness of our supply. The result book-to-bill, as we outlined last quarter, remains below parity in all markets and our backlog due in the current quarter has returned to its typical coverage range. As a result, total backlog continues to decline, but just under a year of revenue, it's still 2x regular levels. And lastly, after a strong start to the second quarter, demand quickly deteriorated in Asia, impacting channel sell-through. As a result, we plan to reduce channel inventory in this region. And in the third quarter, we are planning for sell-in to be below sell-through for the total company. Given these dynamics, we are guiding third quarter revenue to be $3.1 billion, plus or minus $100 million. At the midpoint of our outlook, we expect industrial and auto to be down low to mid-single digits sequentially, communications down around 10% sequentially, while consumer will increase sequentially. Op margin is expected to be 48.5%, plus or minus 70 basis points. The decline in op margin relates to our annual merit increases, changing product mix, and a reduction of manufacturing utilizations given the softer environment. Our tax rate again between 11% and 13%. Based on these inputs, adjusted EPS is expected to be $2.52, plus or minus $0.10. While the near-term operating environment is a difficult one, our diversification and exposure to key secular trends is expected to help mitigate the revenue impact. In addition, we have key levers to help us minimize margin volatility. This includes our flexible hybrid manufacturing model, which allows us to quickly reduce spending on external wafers and moderate the impact on internal utilizations. Our variable compensation program, which has a true accordion-like function, allows us to reduce spending while still investing in key long-term areas. As a result, we expect a durable earnings stream and solid free cash flow generation, enabling us to take advantage of any share price dislocations. Before handing off to Mike, I want to remind folks that in June, we will be doing a deep dive on the burgeoning opportunity for ADI in the construction of gigafactories. And with that, let me pass it to Mike for Q&A.

Thanks, Prashanth. I want to echo Vince's comments and thank you for the partnership over the past six years, but I will warn you, it's not done yet; we’ve a couple more earnings calls together. So with that, let's get to 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 a follow-up question please requeue and we'll take your question if time allows. With that, can we have our first question please.

Thanks for the question and thanks and best wishes to Prashanth. So my question really is, I'm trying to understand where is the incremental weakness; is that limited to Asia and within Asia is that industrial or automotive or both? And what about non-Asia demand, how has that changed versus what you had thought three months ago?

Yes, thank you, Vivek. It has been a pleasure working with you, Vin, and we still have a few quarters ahead of us. While everyone is focused on quarter-over-quarter results, I want to take a moment to look at the year-over-year performance because it illustrates our share gains and the increasing content per dollar of CapEx, which we believe enhances long-term shareholder value. In our industrial and automotive sectors, we have seen year-over-year growth at the midpoint of our guidance, with industrial growth at approximately mid-single digits and automotive at mid-teens. This growth comes during a period when PMIs are below 50 and the auto SAR is relatively modest. Although economic conditions and the cycle influence the number of units our customers sell, which affects our business, we anticipate that our share gains and increasing content per dollar of CapEx will enable us to perform better—declining less in tough times and accelerating in favorable conditions. To address your specific question, China has certainly been a new factor in recent developments. We have experienced three consecutive quarters of decline in China and anticipate a fourth. We did notice a slight increase following the return to office after the Chinese New Year, but that quickly diminished, and as a result, we find that inventory levels are slightly higher in that market than we had expected. I am confident this situation does not reflect a loss of market share but is indicative of the current market conditions. This situation is widespread across both industrial and automotive sectors. Excluding China, I can say that industrial and automotive markets are holding up relatively well, particularly in North America, Europe, and Japan. Although performance isn’t as strong as the previous quarter, it is not declining rapidly, and I would describe it as a measured slowdown. In terms of communications and consumer markets, we have observed persistent weakness across all regions.

Thank you.

Thanks, Vivek.

Yes. Thank you. Prashanth, it's been great working with you. Wish you all the best. I know we're together for a few more months, but anyway wish you all the best. My question is on utilization and inventory levels. So could you give us a sense for where utilization is today, what's your plan for the second half? You did talk about inventory in dollar terms coming down in the second half, but if you could give us any color on the extent of that would be really appreciated. Thank you.

Yeah. Thank you. Thank you, Tore. It's been great working with you. So, as we think about inventory, inventory is going to remain higher than normal because we're keeping the channel lean. This is something we started two or three quarters ago. From a dollar basis, inventory has peaked in the second quarter as I mentioned in my prepared remarks, and you should see dollars start to trend down from here, given the actions that we're taking, which is both reducing our external wafer builds, which is an opportunity that we have because of our swing capacity in our hybrid manufacturing model, and that also allows us to balance out the die bank building in our internal factories with softer demand and tap the brakes on internal utilizations. Utilizations, I would say, still are at elevated levels, so we expect them to start getting closer to what we would consider normal levels in our fiscal fourth quarter.

Tore, to give you a little context, in the outlook we gave, it's about 48.5% operating margins that assumes gross margins come down from where they are today. That's mix, and also, it is utilizations, Prashanth mentioned. And then, OpEx was up a little bit in the third quarter based on merit increase offset some by the variable compensation. So that's kind of the math around that. And then as you said, as you look out, utilizations probably don't go higher in 4Q after 3Q. Just kind of give you a feel for the back half of the year.

Great. Thank you.

Thanks for the question. We'll go to the next one.

Hi.

Hi, Ambrish. We hear you.

Hi, sorry. Sorry, I lost you for a sec. Thanks. Thank you, Prashanth, pleasure working with you as well. I just wanted to come back to the backlog. And you just went through this comment a little bit too quickly for me. So the backlog, as you said, 2x regular levels, but book-to-bill below and it is where the typical coverage ranges at this point. So I was really unsure what that means. More importantly, book-to-bill should then be trending lower, as we go over the next couple of quarters; is that the right conclusion I should take away from those comments?

Let me address this in two parts. First, regarding our perspective on the current correction, while no two corrections are identical, historically, downturns have typically lasted between two to four quarters. We expect some weakness in the second half of the year. However, it's important to note that this appears to be a rolling correction across the market. While no market is entirely immune, we believe we are in a stronger position. In the communications and consumer sectors, we feel that the worst is largely behind us, as we've seen those areas correct over the past few quarters. We are actually becoming a bit more optimistic about consumer trends moving forward. In the industrial and automotive sectors, we are starting to observe some softness, which may extend beyond just one quarter. However, there are still areas of strength within the industrial segment, as mentioned in our prepared remarks. The automotive market will continue to depend on sales activity. In terms of bookings and backlog, overall bookings have continued to decline, but the total backlog is approximately equal to a year's worth of revenue. This indicates that the backlog for the current quarter is now at normal levels, suggesting that we will depend on some book and ship to meet our guidance, returning to pre-COVID norms. Our book-to-bill ratio is currently below parity, which we had anticipated for several quarters. This trend is fairly broad across all markets, although industrial and auto are slightly better positioned; nonetheless, the weakness in the market is widespread, with China being the weakest link.

Got it. Thank you. I'll queue back for another follow-up.

Thank you, Ambrish. We'll go to the next question.

Great. Hi. Let me add my congratulations to Prashanth. Can you talk about the backlog being over a year, when 70% of lead times are below 13 weeks? I know you've been pretty aggressive in managing that backlog. How confident are you that it reflects real demand? Also, it seems like you're still receiving a decent amount of bookings, considering that people have booked out for 52 weeks but can get products within 13. Are people still placing orders beyond the lead time to ensure continuity? Thank you.

Thank you for the question, Joe. You're right that our backlog is roughly a year in value, spread over several quarters. We have delivery dates from customers scheduled for future quarters, which gives us confidence about our future outlook. We're back to the pre-COVID operating state, where a portion of this quarter's revenue comes from repeat business. The improved lead times due to our enhanced manufacturing capacity have brought us back to normalcy. Customers no longer have an incentive to place orders with significant advance notice as they can receive most of what they need quickly. This change is reflected in the book-to-bill rate. We do expect the macroeconomic impacts to affect us, but we're confident that our growth story will help lessen the impact compared to others in the market. As for our market exposure, consumer and communications sectors are largely behind us, while we anticipate some pressure in the industrial sector for a couple of quarters. Regarding the automotive sector, we know we have strong growth potential based on content, but the situation will depend on consumer buying behavior.

I believe our customers have modified their behavior. Previously, there was an expectation for rapid turnaround cycles. While that will continue, there is also a lasting shift in how customers are aligning their long-term needs with supply. We are consistently engaging in discussions about this. I think this change in behavior indicates that we might be entering a new normal.

Thanks, Joe. We'll go to the next question.

Thanks, guys. I'll add my congrats to Prashanth. I wish I was retiring too. I just had a, I guess, question or some more color on the correction. What do you think triggered it? Do you think it was just a function of the shortages going away and people always had a little bit of inventory out there? And now they can start to cancel orders; and then how bad do you think it could get? I mean, your auto businesses tripled, and your industrial business has doubled in the last two years unchanged. So what should we think for like the October quarter and beyond?

I wouldn't describe it as a trigger exactly. As I mentioned, we've been navigating through this situation for a while. There has been significant growth in certain areas of our market that has overshadowed the pressures we've been facing in communications and consumer sectors. Our industrial sector, which is really our flagship area, is beginning to feel some effects from the higher interest rate environment. However, I want to emphasize that a substantial part of the industrial market is quite resilient to recessions, particularly the healthcare, aerospace, defense, and energy businesses. Regarding Ambrish's question, the most unexpected aspect for us was the lack of a strong rebound in China post-COVID and following the Chinese New Year, which we had anticipated. It’s clear that this is not a matter of market share, but rather a macroeconomic issue affecting that region. What was the second part of your question?

Just how bad do you think it could get? Any color on October and beyond?

I'm going to turn to the 40-year veteran of this business, who has seen multiple cycles, and let Vince take that.

Yeah, Chris. I think first and foremost, what we're seeing now in our business is that the troughs are not as deep and the peaks are steeper than they used to be. There is more and more content in every one of the market segments that we participate in. So I think that's the way to look at the troughs are probably going to be shallower. And also, we've been very careful at managing our factories and making sure that we don't unnecessarily build inventory and ship product that perhaps isn't needed. So my sense is we set ourselves for a softer landing just given how we've managed through the cycle and try to match demand of our customers as tightly as we can with the supply system. So, I think perhaps just given where PMIs are at, we would see at least a couple of quarters here of muted demand. And my sense is when the center begins to turn, it will turn quickly.

Sure, Chris. I'll provide some comments on unit demand for the upcoming quarters. It's important to remember that we've seen growth for 13 consecutive quarters, and sometimes investors overlook that down quarters can occur. We're experiencing a return to a more typical fourth quarter; industrial demand appears to be flat to slightly down from the third quarter, with orders remaining steady. In the communications sector, there isn't much activity at present, while consumer demand usually increases a bit. For a standard first quarter, our B2B markets, which include industrial, automotive, and communications, are projected to decline by low to mid-single digits, with consumer demand dropping further due to holiday inventory. Following that, we anticipate a pickup in the second quarter. However, this isn’t a forecast; it's simply the pattern we've observed prior to the pandemic.

Yeah. I can tell you as well, Chris, from conversations with our industrial and automotive customers, their sentiment is quite strong. I met the CEO of one of the largest industrial automation companies very, very recently. And they see tremendous secular growth drivers. There is a rebound in demand from the pandemic stage, where a lot of factory CapEx to improve factories, efficiencies, and so on was not spent, so that continues. The whole sustainability challenge is on everybody's mind. So there are many reasons to believe that we're going through a short-term period here of reconciliation, normalization of demand and supply, but my sense is things will recover in the industrial market pretty rapidly. And in automotive, it's a case of we're getting more and more share in the areas that count with our connectivity products, the electric vehicle portfolio that we've got. And there’s still reasonable demand, I would say, for mid to high-end automobiles. So, we see this as a relatively short-term reset.

Thanks, guys. Thanks for the color.

Hi guys. Just want to echo the congrats for Prashanth. A quick clarification then a question. The clarification is when you talk about the second half being a little bit weaker; is that fiscal year or calendar year? And then the two question is on the automotive side of things. You've mentioned a couple of times that it's kind of SAR dependent, but the bigger trend in automotive over the last few years has been mainly content. And you guys have benefited from that as well. I think you're one of the first companies in the semi side to guide that down, albeit minimally on a sequential basis. Has something changed there, that you're seeing that others aren't; is it inventory, is it demand, just any more color on that would be helpful?

Yeah, Mike. You want to take that?

Yeah. I'll go the first part, Ross; I gave a little bit of comments around kind of what I thought would be for our fiscal 4Q and fiscal 1Q outlook based on kind of normalization. So you can kind of take from that and parse that with your question about is it fiscal second half or calendar second half and put it along that, it's both. With that, I'll pass it to on the auto side.

I'll take it. All right. Yeah. So look, we've grown 10 quarters in a row and the growth was for the last quarter was very broad-based, again across all applications. As we think about the outlook, we are beginning to see some softening though the underlying content growth continues, and our top line should still prove to be a strong multiple of SAR. There is some decline that relates to our strong position in China EV. So when you asked about what's different for ADI, Ross, I think that the share position we have in China EV is probably one of those differentiating factors. And that is going through an adjustment as well. While China EVs are still expected to grow, it's not going to be growing as fast as we had originally thought. And so, as this market comes back, it's going to provide the tailwinds we need for our automotive businesses because we have very high share. Again, take a step back; we remain very confident that this is a business with the strong product portfolio we have, battery management, in-cabin connectivity with GMSL, A2B, and functional safe power. These represent about half of our business, and in a flat SAR environment, we are still going to be able to do double-digit growth.

Thank you.

Thanks, Ross. And Liz, we go to our last question, please.

Thank you for taking my questions. I have two quick ones. First, you have been quite optimistic about pricing in our previous discussions, noting that foundries are either continuing to raise prices or at least not lowering them, and you're able to pass those costs on without issue. Could you provide an update on that? Secondly, I’d like to gain a clearer understanding of the situation in China. Earlier this quarter, you mentioned that business there was recovering, so what can you tell us about the recent shift from improvement to a downturn? Thank you very much.

Thank you, Will. I'll start with the situation in China, and then Vince can address the pricing issue. The situation in China is quite clear. Like much of the industry, we were monitoring the recovery from the extended shutdowns as well as the impact of the Chinese New Year, hoping to see business return to normal levels after a few weak quarters. We did notice an increase in activity and orders following the Chinese New Year. In response to this, we made additional supply available to the market; however, that supply didn't sell as expected and the activity quickly declined. As a result, we have decided that for the current quarter, we will ship less than what we sell through in order to realign inventory levels, primarily in Asia. Now, I will turn it over to Vince to address the pricing question.

Yeah. Thanks, Prashanth. Yeah. Well, I think that the headline about pricing is that it is very, very resilient. And I expect that to persist. In general, we're putting more value to our customers; we're giving more value to our customers. And in fact, the core ASP of our product portfolio has been increasing, not including, incidentally, inflationary costs that we pass to our customers. So, I think one thing we can say for sure about our franchise is, our products are very, very sticky; our products persist for many, many decades for example in the industrial sector. And we're in the post-Moore's Law era, where the economic conditions have changed fundamentally. So I expect the pricing arena to be very steady across the industry. And in general in the years ahead, and we will look for opportunities to pass on inflation, which is going to be persistent in the industry, I believe, in the coming quarters.

Thank you.

Thanks, Will. I thank everyone for joining us this morning. A couple of items before I'll let you go on your way. First, we are planning to combine our general ledger ERP systems this quarter. This represents one of our final steps for the Maxim integration. Given our typically fast reporting cycle, we've given ourselves an extra week to ensure everything runs smoothly. As such, we plan for our earnings call to be held in the third week of August versus the second. Also, I wanted to flag that during these more uncertain times and consistent with our commitment to transparency for our owners, we plan to be even more available for investors. Vince and Prashanth will be in New York, Boston, The Bay Area, and London in the next quarter. Please reach out to the IR team if you would like to be notified when we are in your neighborhood. And with that, a cognitive transcript will be available on the website. Thanks again for joining us and your continued interest in Analog Devices. Have a good day.