Analog Devices Earnings Call Nuggets: Linearity of Orders and Capital Return
Linearity of Orders
James Covello – Goldman Sachs: Guys, is there anything notable about linearity of orders in the quarter and is there any difference in segment relative to that linearity?
David A. Zinsner – VP, Finance and CFO: Actually I think I even mentioned in the prepared remarks. Actually the orders strengthened through the quarter. So that was obviously a positive sign. Clearly industrial was stronger than the others which is why in Vince’s outlook, he suggested that that one had the best likelihood of being up in the third quarter.
Vincent Roche – President and CEO: Yes. We’ve also seen a little momentum in the latter part of the quarter in the communications infrastructure segment. So coupled with the industrial area, they were the two sectors that produced the most momentum through the quarter, particularly in the latter part as Dave said.
James Covello – Goldman Sachs: Then any turns assumptions, differences relative to previous quarters or similar kind of turns being assumed to get to the midpoint of the guidance?
David A. Zinsner – VP, Finance and CFO: Well, Jim, I think I’ve mentioned probably every quarter since I’ve been here; it’s tough to use the turns calculation in that, backlog includes orders from the distributors on us and the revenue isn’t necessarily the same as it’s shipped through to the end customer. But having said that, we’re in a very short lead time environment, we’ve been in this lead time environment for many quarters now. I’d expect that the turns will be pretty similar to what they were in prior quarters.
Terence Whalen – Citigroup: I wanted to drill into your capital return target a little bit more clearly, I think you said, 80% is going to be the rate which you target going forward. Can you provide us just your sort of qualitative context for deciding between buyback and dividend yield and in general, what’s the appropriate dividend yields or free cash flow payout for ADI?
David A. Zinsner – VP, Finance and CFO: We generally don’t look at cash – we generally don’t drive the dividend based on yield. We drive dividend based on looking at our earnings and giving out a percentage of those earnings in the form of a dividend. It just so happens that it translates into this 3% yield, although we’re mindful of it. It’s certainly something that we pay attention to, but it isn’t the major driver of how we drive the dividend. Our goal is, dividend is our primary means of returning cash to shareholders. We want it to continue. We want it to grow as earnings grow and we look at the buyback as more of our opportunistic opportunities to enhance the cash going back to shareholders, albeit at different intervals depending on the stock price relative to kind of historical levels. Then, what was the second question Terence? I missed that part…
Terence Whalen – Citigroup: So, I wanted to just understand what the tradeoff was in terms of you thinking about allocating towards dividend, but I think you may have answered that question, if I could actually, ask a different question Dave, as I look at the second half of the fiscal year, also looking in the context of last year, we saw really consumer accelerate quite a bit and really outgrow industrial, I was just wondering for purposes of considering gross margin, as we look at the second half of this year, should we again expect that now there’s acceleration in consumer, in the second half?
David A. Zinsner – VP, Finance and CFO: Well, generally, Vince, feel free to chime in, but I think that we would normally expect and we’ll just have to kind of wait and see how it goes, that consumer generally has a seasonally strong fourth quarter, and so at this point no reason to expect otherwise, although it’s early and we don’t have any bookings yet. What we’re hoping is that also industrial continues its momentum. Last year, there was a bit of a redirection on the industrial business in the back half of the year, as kind of overall economic sentiment started to deteriorate through the back half of the year and so industrials mix kind of came down, but we’re hopeful that this is the start of a recovery and we don’t see that, but again, it’s early. We’ll have to kind of be watchful of both. The good news is that the margins – the gross margin, as that’s kind of the lead end of the question, does mix change? I don’t think the mix changes too dramatically, because all the margins in all our end markets are actually pretty good, and pretty close to the corporate average. So, regardless of what happens. I think we’ll do a pretty good job of seeing gross margin leverage through the back half of the year, assuming conditions continue to be strong.
Vincent Roche – President and CEO: To add a little color to what David said, we’re in the transition between 3G and 4G and wireless infrastructure and as that gains pace, we’re very well-positioned as a Company with good market share, a lot of good design coverage and extra build materials value in 4G compared to 3G. So, as that starts to gather steam, which we hope is sometime in the second half of the year, albeit, so far the carriers have been fairly skittish, but somewhere we believe in the fourth quarter and to the early part of the coming year we do expect to see the carrier start to accelerate the build out of their networks in terms of capacity rather than coverage. So I think that will help the margin structures and the growth overall for the Company.
A Closer Look: Analog Devices Earnings Cheat Sheet>>