Analog Devices (ADI) Q1 FY26 earnings call: guidance and Q&A

Will the Industrial segment continue its above-seasonal performance in the next quarter or two, and are there any signs of OEM customer restocking?

Management expects Industrial to continue strong, up 20% sequentially in Q2 FY26, well above seasonal. They do not see any evidence of customer restocking at this point in the cycle, indicating current orders reflect consumption.

“We don't see any evidence whatsoever of that at this point in the cycle.”

asked by James Schneider · answered by Vincent Roche

Could you provide color on the gross margin and OpEx drivers embedded in the Q2 guidance, particularly regarding utilization, mix, and variable compensation?

Q1 gross margin was 71.2% due to better mix, stronger utilization, and discrete items. Q2 expects 100 bps GM expansion (150 bps normalized) from favorable mix and price, noting 50 bps from channel repricing will not repeat in Q3. OpEx is expected to grow mid-single digits in Q2 due to strategic hiring and higher bonus factors, but OpEx as a percent of revenue will fall, leading to 200 bps sequential operating margin improvement.

“in our Q2 outlook, we're assuming 100 bps of gross margin expansion or up essentially 150 bps versus Q1 because that excludes the discrete items that I mentioned in my prepared remarks, and again, the expected increase here is driven by favorable mix and uplift from price, which includes 50 bps that will not repeat in Q3 since it relates to the onetime effect of repricing our inventory in the channel.”

asked by Stacy Rasgon · answered by Unknown Executive

Can you quantify ADI's data center exposure across ATE, optical, and power, its growth last year, and future growth expectations? Also, what is ADI's visibility around extending market share in the crowded power segment?

ADI's data center business (ATE, optical, power) is roughly 20% of total revenue, over a $2 billion run rate. ATE is about 40% of that, with the rest balanced between power and optical. ATE grew ~40% and data center ~50% in FY25. All these areas are expected to grow at double digits over the next several years. ADI thrives in complex power problems, leveraging system-level knowledge and mixed-signal/digital processing to differentiate in efficiency and density.

“If you think about our data center business, Vince commented on the call, is roughly 20% of total ADI now. It's over a $2 billion run rate and to think about the breakdown there. About 40% of that ATE the rest is data center. And then within data center, it's pretty balanced between power and optical.”

asked by Vivek Arya · answered by Richard Puccio

Where does ADI stand on shipping relative to consumption in the Q2 guidance, and will the company be shipping to consumption by year-end?

Management believes customers are through the digestion phase and are essentially ordering to consumption, which is broadly true across end markets. They expect to be nearing customers ordering at consumption across the board and have not seen evidence of restocking activity.

“our sense now is customers are through that digestion phase and are essentially ordering to consumption. And we think that's broadly true across the end markets, but there's probably some differences across the diversified customer and application base.”

asked by Timothy Arcuri · answered by Unknown Executive

Where are the biggest signs of demand recovery in Industrial, given the strong outlook compared to peers, and how much is idiosyncratic vs. ex-ATE growth?

Industrial's book-to-bill was well above 1 (excluding pricing) in Q1, with broad-based strength across segments and geographies. ATE and Aerospace & Defense (1/3 of Industrial) are driving new highs. The other 2/3 of Industrial is 20% below previous peaks, indicating cyclical momentum with normalized ordering patterns. Q2 Industrial outlook is up 20% sequentially, led by ATE growing >30% sequentially, showing broad-based growth.

“For 4 straight quarters, we've been an above seasonal growth with double-digit year-over-year growth, and that is driven by strength across all of the industrial segments.”

asked by Joshua Buchalter · answered by Unknown Executive

Are there any signs of stabilization or potential growth in the Automotive segment as the company moves past the subsidy environment?

Automotive Q1 was below seasonal due to tariff-related pull-ins and increased China exposure impacting Q2 (Chinese New Year). Despite near-term headwinds, ADI's strong share position and underlying content growth remain unchanged. Management is confident that after the first-half headwinds, the second half will be stronger, and auto will grow in FY26 compared to a record FY25.

“Therefore, we're pretty confident that once we get past the headwinds in the first half, our second half will be stronger and I actually believe that auto will grow in fiscal '26 versus what was a record fiscal '25.”

asked by Joseph Moore · answered by Unknown Executive

Can you elaborate on your pricing strategy, the blended pricing expectations for the year, and how much of the pricing benefit is reaching customers?

ADI's pricing approach dynamically adjusts to reflect solution value and innovation premium, which is extending. Recent price increases are a practical response to persistent inflation. The pricing adjustments with channel partners went into effect at the start of Q2, and annual negotiations with direct customers are largely complete. About one-third of the Q2 sequential revenue increase is price-related. Half of this Q2 price lift (50 bps) is from channel inventory repricing and will not repeat in Q3. Q3 and Q4 are expected to see about 50 bps of incremental growth each from price.

“the overall impact of the pricing actions on our 2Q outlook is about 1/3 of the quarter-over-quarter revenue increase at the midpoint is related to price. Excluding the pricing uplift, our sequential growth outlook is more like 7% versus the 11% I mentioned before, still nicely above our 4% to 5% seasonality.”

asked by Christopher Caso · answered by Richard Puccio