Analog Devices (ADI) Bench
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Analog Devices (ADI) Bench Presentation Transcript

  • 1. Penn State Investment AssociationInformation Technology Sector
    Analog Devices, Inc.
    (ADI) NYSE
    Joe Eirkson, Katie Lally, Matt Lochansky
    The Nittany Lion Fund, LLC.
  • 2. Team Recommendation: Bench
    Top Three Reasons to Bench:
  • 3. Company Description
    • Analog Devices, Inc. is a world leader in the design, manufacture and marketing of high-performance analog, mixed-signal and digital signal processing integrated circuits (ICs) used in virtually all types of electronic equipment
    • 4. New organizational structure in 2009 introduced two focus groups:
    • 5. Core Products and Technologies (CPT): product focused
    • 6. Strategic Market Segments (SMS): end market focused
    • 7. Operates in 18 countries60,000 customers
    • 8. Headquartered in Norwood, Massachusetts
    • 9. Employs approximately 8,300 people
    • 10. Operational business segments include: Industrial, Communication, Consumer, Automotive and Computer
    CEO
    Jerald Fishman
    3
  • 11. Revenue Breakdown
  • 12. Industrial Segment Growth
    Industrial and Instrumentation
    Healthcare
    • Expected 8-12% growth over 5 years
    • 13. Shift in motor control technology increased demand for signal processing
    • 14. Demand driven by customers’ needs for increased:
    • 15. Energy efficiency
    • 16. Industrial automation
    • 17. Advanced instrumentation
    • 18. Significant growth opportunities in Asian markets—particularly China
    • 19. Expected 10-14% growth over 5 years
    • 20. Increased demand for imaging and patient monitoring
    • 21. ADI is a market leader
    • 22. Strategic partners optimistic about 2011 spending
    • 23. Healthcare trends to increase demand:
    • 24. Increased need for highest speed and channel count in medical imagining systems
    • 25. Demand for improved measurementincrease diagnostic accuracy
    • 26. Expansion of telemedicine; portability
    • 27. Greater need for secure communications capabilities
  • Mobile Infrastructure Exposure
    Appetite for data/video continues to accelerate the need for more advanced based systems, 4G or LTEplays directly to ADI’s signal processing strengths
    60% of ADI’s Communication segment comes from communication infrastructure and wireless
    Virtually every wireless call, text, picture or download today passes through an ADI IC
    Drivers of growth:
    Need for higher performance radios
    Higher density of channels to support increased data
    Improved power efficiency
    Smaller footprint
    Lower cost per channel
    Short-term and long-term benefitsupgrades to 3G and 4G now and will continue in the future
    More rollouts /upgrades
  • 28. Best-in-Class—Data Converters
    Market leader in data converter technology (46% market share--exposed to literally every region)
    In 2010, accounted for 47% of sales (29% increase from 2009)
    Data converter market expected to increase 9% every year through 2015
    Demand for ADI converter technology driven by:
    Proliferation of digital systems
    Increasing number of channels of signal processing in new, emerging applications
    Data converters determine the overall performance of a systemADI offers high-performance, best-in-class solutions
    Continuously improving architecture and process technologies to meet customers’ needs
    Customer Design Process:
    Begins with ADI data converters incorporates other components of ADI product portfolio
  • 29. Company Risk
    Dependence on third-party subcontractors:
    Relies on subcontractors and third-party wafer fabricators
    Generates 50% of its revenue from products at third-party wafer-fabrication facilities
    Risks: reduced control over availability, capacity utilization, delivery schedules, manufacturing yields and quality and assurance costs
    Lack of long-term sales contracts:
    Demand may be volatile in certain end-markers
    (Long-term contracts are unusual for Semi companies due to constant technological change and upgrades)
    Intense competition:
    Technological
    Pricing
    Fluctuations in foreign currency:
    Very sensitivederives 80% of revenue from international markets
  • 30. Sector Risk
    • Industry is highly cyclical—vulnerable to economic downturns
    • 31. Most semiconductor companies carry risk due to increasing R&D expenses in the industry
    • 32. Higher inventory levels, lower utilization rates and softer orders pose risks to industry’s profitability
    • 33. Increased consolidation across industryeconomies of scale
  • Sector Strategy
    ONNN’s Back-Up Plan
    • The general Semi market is expected to grow 5-9% this year
    • 34. Play to reduce exposure to the Auto Industry
    • 35. Negative outlook for Autos for the next 1-2 years
    • 36. Auto market accounts for only 13% of ADI’s revenues v. 22% of ONNN’s revenues
    • 37. Diversify geographic exposureless reliance on one region (like ONNN and Japan)
    Current Allocation
    Proposed Allocation
    10
  • 38. Comparable Analysis
    11
  • 39. Ratio Analysis
    12
  • 40. Five Year Summary
    13
  • 41. Growth Analysis & CAGRs
    14
  • 42. Projections
    15
  • 43. Discounted Cash Flow
    16
  • 44. One Year Stock Chart
    17
  • 45. Debt Distribution
    18
  • 46. Team Recommendation: Bench
    Top Three Reasons to Bench:
  • 47. Questions or Comments?