Core Portfolio Insight: Analog Devices (ADI)

Core Portfolio Insight: Analog Devices (ADI)

March 11, 2022
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Ray Stata and Matthew Lorber founded Analog Devices in 1965 with its first product: an amplifier the size of a hockey puck. Fifty-seven years later, Analog is a global leader in semiconductor technology and engineering, employing over 25,000 people, half of which are engineers. Analog sells products that connect the physical to the digital world to over 125,000 customers globally. Revenue was $574,000 in 1965. In fiscal year 2022, revenue is expected to be over $11 billion. 


(chart from Koyfin - shows revenue, growing from < $3B to over $8B, and free cash flow, growing from ~$700M to over $2.75B, over the last 10 years)

Analog made its first major acquisition with Hittite in 2014 for $2 billion. Hittite brought high performance radio frequency (RF) and microwave technology, including a valuable aerospace & defense business, to Analog's product portfolio. Hittite's revenue is over $500 million today, double the amount from when Analog bought it. The next large acquisition was Linear Technology for $14.8 billion in 2017. Linear gave Analog a power management franchise which included the highest performing battery management system (BMS) used in electric cars. Analog doubled the growth rate of Linear since the purchase. Most recently, Analog acquired Maxim Integrated Products in 2021 for $20.8 billion. Management is excited about Maxim's GMSL (Gigabit Multimedia Serial Link) technology that serves as the "train tracks" in vehicles, moving the data around necessary for advanced driver assistance systems (ADAS). 

Analog Devices is a GPM Grade Company that generates substantial free cash flow to invest organically, make smart acquisitions, and increase dividends over time. Analog promotes a unique engineering culture and has a diverse product set that avoid risks of concentration. It benefits from strong secular trends in 5G, autonomous vehicles, digital healthcare, and more. About 50% of Analog's revenue today is from products derived 10+ years ago. We can be confident that its products will continue to be demanded 10 years from now. As seen in the chart above, Analog has top tier margins, with free cash flow margin of over 30%, putting it in the top 10% of S&P 500 companies. 

Sources:

Analog Devices presents at Raymond James conference

Analog 50 years timeline

Koyfin Charts