Analog Devices, Inc. (ADI) Earnings Call Transcript & Summary

Good morning, everyone. I'm Stacy Rasgon, and I cover the U.S. semiconductor sector here at Bernstein. I want to welcome you to our Strategic Decisions Conference. Before I begin today's session, I'd like to say a word on how our interactive Q&A is going to work. We're using a service called Pigeonhole. There is a link on the left side of your screen to access Pigeonhole. When you click that link, it will open up a new window in your browser and the video will continue in the prior bar. You can use that window to submit questions in the box at the top. You can also vote on questions that have already been submitted by pressing the up triangle next to any one of them. So please go ahead and click on that Pigeonhole link now. Hopefully, everyone has now done that. You can submit questions for Vince beginning right now for ADI and at any time during the presentation, and we will leave time for that Q&A at the end. Also, we are working with our partner, Procensus, to do live polling on the presentation after the session ends. A link to Procensus is also on the left of your screen. Again, this will be a live poll. It only takes a couple of minutes, but it will have immediate access to the results for those that choose to submit. So please do take a few moments to fill that out after we're finished. So with those logistics out of the way, it's my great honor to introduce our guest, the President and CEO of Analog Devices, Mr. Vincent Roche. Now of all the companies that I cover, I think Analog Devices is one of the most respected. It has an extremely high-quality franchise in the analog space, particularly as it relates to signal conversion and processing. Over the last decade or so, the company has embarked on a rationalization program of their product portfolio and manufacturing footprint. They were smart enough to exit mobile early enough to actually get paid to do it, and they've increasingly focused their product offerings on high-value applications, whatever the end market, as well as greatly increasing their presence in new markets, such as healthcare, which is relevant for today. And their acquisition of Linear Technologies, the premier high-performance analog player in the industry, has further extended this transformation, bringing the Power franchise into strong synergy with ADI's classic signal chain offerings and bringing the company's margin structure to recognize. In terms of controversies, obviously, there's near-term controversy around the sustainability of the growth profile amid COVID-19, which actually does seem to be holding up fairly decently relative to others. I think beyond the COVID situation, though, investors are focused on the communication opportunity and whether it can drive overall above-market growth in the wake of the impending 5G rollout. They're looking at increasing contribution of areas like healthcare, the potential for an automotive turnaround, what additional upside Linear can bring into the model from here, and of course, the broader question of what the current geopolitical landscape might do to this picture. So to answer these and other questions, it gives me great pleasure to introduce the President and CEO of Analog Devices, Mr. Vincent Roche. Vince, thank you so much for being with us here today.

Stacy, thank you very much for that great introduction. It's great to be here.

So I -- many of our clients are -- I like to avoid some of the near-term questions in this format. I won't be able to avoid in this one. But before I get into that, I do want to ask a little bit about kind of looking back and how we've gotten here. So you've been CEO of Analog Devices for about 7 years. You've been with the company over 30. We've seen tremendous change in ADI over that time. We've seen refocusing of the product portfolio. We have trough margins today that are much higher than peak margins ever used to be, and frankly, they're higher than almost anybody else's peak margin in the industry at your trough. We see much greater use of inorganic levers that you've made to strengthen and transform the portfolio much more than I think than your predecessors did. So I guess, what can you tell us about how things have evolved during your tenure as CEO over the last 7 years and, frankly, even over your career? Where do you think things are going to be going from here, say, over the next 7 years?

Yes. Thanks, Stacy. Very, very good questions there. So yes, I've been with ADI for 31 years now, I think, 32 years. And one of the things that's very, very clear is that the analog space by nature is pervasive. I mean it's essential as the interface between a cyber world and the everyday world that we live in, the social world, the economic world, the world of health and so on and so forth. So I think what's very, very clear is that as we move increasingly into immersive digital experiences, we move into a world that is defined more and more by rich sources of data that create real impact in the world, the analog area is essential to that. So it's ubiquitous, it's pervasive. And we, as a company, have made -- we've been dedicated to the analog space. We're 55 years old now as a company. We've been dedicated to playing at the frontiers of analog innovation, and that has not changed. We just spend a lot more money doing that now. We have a lot more arrows in the quiver than we've ever had. So we have, over the years, built the premier signal processing franchise, whether it's high speed or precision, to address healthcare, industrial products or communications products. And over the past 5 years, Stacy, we have added 2 very, very strong franchises in their own right as well in the analog space. Hittite gave us microwave and RF. We have a leading position there. In fact, with the scale and the investments we've made -- the scale we've brought and the investments we've made around the Hittite franchise, we've been able to double the size of that company, that entity over the past 5 years. Of course, LTC. We're 3 years into our journey with the LTC acquisition. There, what we prized was the -- a very, very similar approach to playing the technology game in the analog space, high performance, provide innovation that excites customers and get very, very well paid for it in franchises that have long life -- they have long life cycles. And what LT has brought very uniquely to ADI is the Power franchise because everything has got to be powered, whether it's a processor or a signal chain, a sensor, everything has to be powered and increasingly more efficiently. So what I focused on very, very heavily over the last 7 or 8 years is making sure that we focused ADI's investment portfolio, whether it was organic or inorganic, on the B2B space, essentially, so with industrial as the core, surrounded by communications; connectivity; automotive; and increasingly, healthcare. So diversity is an important part, making sure that we continue to improve our innovation game to make ourselves more relevant to our customers for the long term and just improving every facet of the company, whether it's the operation, the -- whether it's the ability to generate more free cash flow, that's essentially ADI.

Got it. So that's kind of where we've gone. Where we haven't gotten here -- I do want to talk a little bit about where we're going in the near term. And again, like I said, I don't like -- in this format, I don't like the near term, but in this environment, things are changing very rapidly.

Understandable.

I do want to touch a little on COVID. Actually, so your forward profile, I would say, seems to be holding up at least relatively well versus others in the current kind of COVID environment. Can you talk about some of the factors that are contributing to that? And then maybe talk a little bit about where your visibility actually is on where things are going amid COVID?

Yes. So I think, first and foremost, our healthcare business has actually been growing over the past several years in the high single digits, kind of low double-digit area.

Is it that high now?

Yes. Yes, it's a multi-hundred million dollar business for the company. Last year, we grew about 7% or 8%. The year before, we grew double digits, and we've repurposed that portfolio as well. We've done a lot more application-specific signal processing devices for things like digital X-ray, for example. We've been able to bring the LT Power franchise to bear as well. So the healthcare business, not surprisingly, has been very strong. We have what are considered to be essential businesses that support the need to build infrastructure for ventilators, respirators, X-ray systems I've just talked about. And I expect that, Stacy, to continue for -- at a very, very high peak for the next several quarters. Our industrial automation business has actually been quite solid. As -- particularly as China and Asia have been coming back into economic activity again, our automation business has done actually quite well. The other areas of strength, obviously, 5G. 5G today is a facet of Asia. China is the most aggressive in terms of build-out, along with Japan and Korea. And given our strength in these advanced 5G radio systems, the software-defined radio systems, the microwave technologies that we're bringing and also the fact that we're now beginning to connect power management to the solution as well, that gives us a future tailwind. But the tailwind right now is our signal processing and microwave franchise with power yet to come. There are the businesses then that support, let's say, cloud and data center, okay? Work from home, where we need to get predictable bandwidth, less latency in the system. You and I were just talking a while ago about our struggles to get enough bandwidth into our home offices. So that has been a strong business, too, particularly the optical part of that where we have strong power business, but also we have an optical control franchise that supports the 100, 400 and beyond optical routing systems. So those are -- and ATE that also supports the ecosystem of cloud and data center, particularly...

He's got to be tester, by the way, for those of you on the line.

Exactly. So that's right. So those are the strong points. Automotive has been a crater for everybody, and I don't see that recover anytime soon at least this year. But perhaps next year in the first half, we'll begin to see a gradual recovery. And I think overall, Stacy, because you'll probably ask me anyway, I would say this is going to be a tough year, I think, for everybody. We have the capacity, given our margin structures to keep investing in our business, but also we have enough diversity across the applications I've just outlined that I think we'll do as well as any in the sector. And 2021, I believe, will be a growth year again for the semi industry at large and also ADI.

Got it. I guess, the trajectory through the rest of the year, though, is still up in the year? Is that...

I think it is, I think it is, yes. As I said, I would see healthcare products continue to do quite well. The -- at least the -- our third quarter in 5G, I believe, will do fine. And I think consumer is still finding for us. We've talked very publicly before that we still expect 2020 to be the year where we reach the bottom, and we'll start to see in our prosumer, portable businesses in consumer, we should see those improve into a growth trajectory next year, given the diversity of our portfolio and our design pipeline.

Got it. So let's talk a little bit about a few of these key end markets. Obviously, comm, I think, is probably top of mind for many investors given the current 5G cycle and everything else.

Yes.

But if I start more broadly to begin with, you've been talking about this business for a while, and you've been talking of sort of like a double-digit sustained kind of growth rate or CAGR in that on the back of some of these drivers, content increase in 4G MIMO and 5G and the overall build outs. Can you talk a little bit about what is actually driving that? What specific products are driving that kind of an increase? What is the order of magnitude of, like, dollar content and content increase from technology, technology that you're seeing? How confident -- like how long does this sort of like kind of like sustained growth rate -- and I'll come back to the near-term kind of COVID issues in a moment. But if I look through that, how -- like how long does this actually last? Like, how long does this go on with strength?

Well, I think 5G as a communications modality is that's going to have a multiyear cycle. I think the very near term, the next year to 2 years is really going to be about the consumer. But you will recall that in 5G, one of the great promises of 5G is because of the dynamic provisioning of services, guaranteed latency and the way the bandwidth is being allocated for industrial enterprises, healthcare as well as consumer real-time applications, yet the enterprise has to emerge. And today, we're hearing more of our industrial customers and healthcare customers talk about the use of 5G as a very efficient and accessible form of communications for critical applications in factory automation, in the healthcare space as well. So I think it's a multiyear build out with consumer absorbing most of the build out in the early parts, the next couple of years. And beyond that, it will be consumer with B2B as a large user of the capability. So...

Well, how do you think that this for B2B is material in 5G, by the way? Because that is...

I think right now, Stacy, it is far, far less. I think it's a single-digit percentage penetration, for example, in healthcare as well as industrial enterprise in factory automation. So it's at the embryonic stage, I think, is a good way to put it. It has yet to emerge.

Would you agree with the argument that the real pull then ultimately really is more from enterprise versus the consumer? Like, I'll be honest, like I have not been an incredible 5G bull on the consumer side. Not to say that consumers won't buy the phones, they will do. But I have struggled, at least personally, somewhat with what is the actual use case for the consumer to want 5G. But on the enterprise side, in the B2B, I can see it, it just takes longer. What are your views on that dynamic?

Yes. I think I believe that 5G was always envisioned as an enterprise technology. That is the long-term vision. So to be able to replace cables to be able to move service to where it needs to be with high bandwidth, guaranteed latency and a lot of edge processing. And that still is, I think, the basic economic premise and the value of 5G. It is far more that than it is the consumer. We will benefit. I mean all the phone manufacturers, smartphone manufacturers are putting 5G in place. So de facto, it will become part of the consumer experience as well. Will we pay more for it? That's a big question. But the enterprise will pay for a quality of service guarantee, that's for sure. So that's how I view it. I think my opinion and from talking with carriers, talking with the OEMs, it is really going to be about enterprise and large-scale B2B-type activities.

Got it. And that ought to play very well in there into what you do.

Yes. So what do we do? You asked, what is it we do? So one of the pillars of 5G is the massive MIMO radio system with multiple channels of transmit and receive. We make software-defined transceivers that essentially greatly simplify the design and deployment of those radio systems. In terms of size, so footprint is really important, in terms of power efficiency, and also the ability to process spectrum dynamically across multiple different carriers, multiple different parts of the spectrum. So that's the pillar, if you like, of our 5G activity. When it comes to microwave and we start to get into, for example, Verizon's point-to-point urban transmission systems using microwave, we call upon our Hittite franchise, where we have, again, a lot of content. And just to give you a sense for the content gains between, say, 4G and 5G, the typical 4G system -- or a typical 5G system gives us about 4x more content value than we had in 4G. And microwave gives us even more content than a classical sub 6-gigahertz software-defined transceiver. So the content gains are, I would say, between 5G and 4G, well beyond 5x.

What's the kind of magnitude of the dollar amount we're talking about in like a 5G system versus a 4G system?

Well, it depends, Stacy, on the number of channels used in a massive MIMO system, but it's hundreds of dollars per system.

Got it. I'm going to pull a question from the Pigeonhole because it's on -- next on my lesson, it's key. Potential delays in the 5G rollout given the pandemic or, frankly, the current geopolitical situation with the U.S. and China. What are your thoughts on that? How do you see the rollout progressing through the year and into next year?

Yes. So I think this year is really about Asia, and particularly China, and that's going ahead.

Even amid everything else that's going on, you don't see any delays or anything like that?

Well, we have no evidence of delays. I think China is very, very determined to plow ahead. We don't see any evidence of delay. Japan and Korea are also continuing to build out the 5G network. And somewhere towards the back end of this year into next year, I think we'll begin to see an earnest build-out of 5G in the U.S. You've seen the announcements from Verizon and T-Mobile. So at some point, it's very hard to say exactly when in 2021, but it appears in the first half, we're going to see an earnest build-out of 5G systems in the U.S. as well.

Okay. You don't think that the China rollout has any delays due to the new restrictions on Huawei?

Well, it -- there are options. There are many, many suppliers of 5G. Obviously, not that many in China. So I think the restrictions we're seeing certainly don't impact us in any new way compared to what we experienced several months ago. So I think the answer is that, that situation is still evolving. But everything that we hear -- we've got, obviously, our ear very, very close to the ground across the globe, and everything we hear would suggest that the build-outs will continue.

Okay. I want to switch over to automotive. So comm has been a market that has been very, very good. Automotive has had a few more bumps on the road. Can you talk a little bit about some of the issues that ADI has had in automotive, especially since the Linear deal closed? Let's put COVID aside for the moment, we can come back to that, but just sort of structurally like what's happened in the automotive business over the last couple of years? And where are things now and where are they going?

Yes. So we have really 3 pieces to our -- if you like, 3 subsectors within automotive, within that business for ADI. So first and foremost, infotainment. So that's built upon our long heritage in audio signal processing. And you'll recall that we have introduced some new modalities in there, like A2B for example, which is an audio distribution system. And that has traction in far more than 80% -- 70% to 80% of the OEMs, and that's ramping quite nicely for ADI. And on top of that now as well, we're beginning to add active noise cancellation technology, which is, I think, something that will redefine the experience in the car. I mean just the zones of silence you can bring in a very, very tight space, reducing road noise, so that's something that we're getting good traction with, built upon our audio DSP franchise, our A2B bus system with these ANC algorithms as well. LT has always had a reasonably good business in the infotainment space. But given our penetration there now, we're bringing the Power franchise to more and more places. So that's one sector. And that's a business, I think, that can grow at the rate of SAR for many, many years to come, whatever that will be.

Do you have a view on what that will be?

I think the next couple of years is going to be very, very tough. I mean we've seen -- you see numbers from down 10%, down 25%. It's very, very hard to tell. But there are interesting dynamics emerging as well as a result of COVID-19. How will the use of public transport emerge out of COVID-19, and what will that mean for the use of private transportation? My sense is there will be some movement from public to private, which will potentially increase the usage of private cars. That's an opinion. The electric battery is another area of the electric powertrain and the battery technologies that we inherited from LT. In fact, we're on our fifth generation now of battery technology. And when anybody wants the highest performers, most efficient use of their batteries, they need our precision technology. So that's a business that I think we've recovered quite well, and we're back on a growth track over the last year, 1.5 years.

What was the [indiscernible] with the business? Because I know that was part of the reason that auto was kind of going through the trough. What happened there and what's changed?

Well, it was a case of -- let's say, the economics weren't working out for LT. So we've been able to accelerate introductions of products to market and also revise the cost structures to enable us to be much more competitive in the battery socket. We've also -- Stacy, LT's business was very heavily centered in China, but we've been able to get good traction in the U.S., and we're starting to get good traction in Europe as well with these electric powertrain battery control systems.

Got it. By the way, on that note, do you think some of the -- like there's been some announcements of EU stimulus for EVs in the wake of COVID. Building on what you just said, do you think that, that becomes somewhat of a -- can that become a tailwind, especially in the next year for this part of the business?

I think it can. I think it absolutely can. I mean all of the -- every single OEM in Europe has decided to steer big chunks of money out of the combustion engine into making sure that they can participate in the electric vehicle world. So yes, I think it is a very distinct possibility, also given Europe's very, very strong desire to spend more federated European funds in protecting the environment, keeping the environment cleaner and cleaner.

How much of the auto business today is the BMS and electric vehicle? How much is exposed to EVs?

It is somewhere in the region of around 10% of our automotive business today. So it's got a lot of legs yet. I still think, I mean, penetration of electric vehicles is 1% to 2% of total car sales today, but that will climb to 20% to 30% over the next 7 to 10 years, I think.

Got it. Okay. Let's talk a little bit about industrial. I know this is a bit of a catch. We talked a little bit about healthcare that is still in industrial for now. Presumably, hopefully, someday, that may become its own segment. It sounds like it's getting on the bubble. I don't know that you mentioned defense, but I know that's been another area that's been quite strong in its size. I'm trying to remember what you said on the earnings call, it was defense and healthcare, maybe automation were something like 50% of the overall industrial business today. Is that -- I don't remember the category.

That is about right. The defense area is, let me see, somewhere in the region of 20% of the -- aerospace and defense is about 20% of the overall industrial business, and about 80% of that is centered on defense. So in other words, 20% is aerospace and 80% in the defense area. So that's been very, very solid. I mean that's a business that is heavily centered in the U.S. and Europe. That's stronger than it's ever been, given the fact that we've been able to take the LT, the Hittite and the ADI franchises and really build an investment portfolio there that is increasingly impressive. The factory automation side -- factory automation and process control, again, is about the same size. Healthcare for ADI is around 15% of the industrial business.

[indiscernible]

Yes. And I have actually extracted the healthcare group, brought along to my staff. So now we have a more -- a clearer focus on the business in what we call our digital healthcare unit with some very, very exciting products and technologies coming in particularly the wellness part, focusing on being an enabler of the need to bring -- to make healthcare more accessible, more affordable with a focus on wellness rather than therapeutics. So we'll talk more about that. We'll do some specific presentation of that capability and what we're doing there over the coming months and quarters. So that's -- what else on the industrial side? They are the big pieces. And I think all of those pieces will benefit from, as I said, the need to build redundancy into healthcare to put more digitalization and sensing into the hospitals, the clinical environment, also the home. And Industrial 4.0 really still has to happen. So we're well positioned for when the onslaught of Industry 4.0 really, really happens.

Got it. And let's talk about Linear a little bit in the context of that. So I think you've talked a lot about what they bring to the table, power, attach and everything else. In terms of moving toward that, if you want to call it Industrial 4.0, like how important was it to bring Linear into the fold in order to attack? And what are they actually bringing to the table that's letting you go after sort of that vison of the future?

Yes. Well, there will be more and more edge processing in Industry 4.0. More connectivity, more edge processing, and all of these, no matter what it is, any time you've got an active device, you have a need for power. There's more and more artificial intelligence is moving in, machine learning is moving in. And the beauty of power, I think we've mentioned before, Stacy, is that for every dollar of signal processing analog that we sell, there's a dollar of power available. So half the analog market essentially is power, and LT was underpenetrated. I mean LT focused on very, very much the high-performance side. We continue to focus on the high-performance side, but our ambitions have extended. We're bringing power into larger accounts now where the competition is stronger. But we can do so on the basis of our performance and a better cost structure to be able to get the kind of the margin -- to be able to reach the margin expectations that we have.

Does that imply that you've improved Linear's cost structure? Because, like, what's the reason that they couldn't have done that on their own? Like, what are you doing differently with Linear that they weren't doing?

Well, first off, we have more buying power. There's a lot more buying power that we've got by combining so a $6 billion company versus a $1.5 billion company. And there's a lot of focus on -- within the global operations team at ADI on continuous cost reduction. So we're prepared as well to take a bit more risk on pricing, let's say. So we're managing both sides of the equation. But it's not all about pricing. It's about being able to bring the LT Power franchise to more places. LT was largely midsized customer- to small customer-focused. ADI, to a first approximation, was more focused on, say, the top 500 or 700 customers. So we're bringing our power to more and more places and getting the benefit of attaching power to our signal processing franchise.

But it's not like -- I mean you mentioned you're being maybe a little more aggressive on pricing, it's not like it's hurt the gross margins at all.

Well, actually, we have improved the gross margins.

Yes. So that was my question. So what have you done with Linear on the cost structure specifically that's enabled you to go after, indeed, maybe more aggressive and yet not have it impact the bottom line? Because it seems like the margin performance has been very good.

Yes. So aside from just raw buying power, we've also worked very, very hard on factory efficiency. So we've taken 2 internal Linear fabs, we're consolidating into 1. You'll see the benefit of that in the cost structures in the coming year. We've also taken the back end operations and made them a lot more efficient. We've capitalized them more to get better throughput, better cost structures. And so we're also rationalizing the footprint in Asia. So all the back end -- much of our back-end operations in Asia. So we're taking what were 2 LTC back end plants, consolidating into an existing ADI plant and into an existing ADI assembly facility. So it's really a redistribution of the work into lower-cost areas with more efficiency, essentially.

Got it. Got it. And I guess on the revenue synergy side, like, what are the current targets for revenue synergies, again? What are the targets to drive those? And like what's the time frame that we should expect to see those...

Yes. So Stacy, we're 3 years in now. And when we acquired LT, we had a, if you like, a formula for how we thought revenue synergies would manifest. So we said, look, we think automotive and communications will be the first adopters where the focus is such and the product adoption cycles are such, the life cycles are such, and that's begun to happen. We are beginning to see the early stages of adoption of power technology into the automotive sector. I've talked about our communications sector earlier, and we're beginning to ship into wireless infrastructure now LTC power management modules that do a very, very important job in terms of managing footprint and thermals. So that's at the early stage of adoption. And I think if you look across the entire portfolio over the last 3 years, I'd say now we've calculated that we've added about 100 basis points of growth on top of what was LTC's base growth of around 3%.

Already, you mean?

Yes, already. It's -- so we want -- our aim is to double what was LTC's 3% to 4% growth rate to 6% to 8%. That's the objective. And I am impressed with the pipeline of opportunities that we've now got in place across large and small customers. So I think we have a very, very good shot at reaching the goal we've got.

And I guess, you're more generally around growth, you have a very kind of robust operating model. You're kind of operating at, again, near-term headwinds aside just because of utilization, I mean, I get it, but 70% gross margins, high operating, you're kind of there. Does that imply that COVID aside, just by -- growth is -- by necessity has to be a bigger strategic imperative for ADI going forward? Maybe more than it was previously, at least like more -- you seem to be more willing to step up and say, we are a growth company. I mean do those things going into the hand? It feels like they do.

Yes. Look, the core thesis, I mean, we're investing 20%. We invest more -- on a percentage basis, we invest more than most, right? We're investing 20% in R&D, and we've also increased our spend in our go-to-market activities. It's the -- bringing the human experience to bear with our customers, but increasingly as well, bringing more digital capability to our customers. It's becoming a more immersive digital experience in terms of having your products researched, prototyped and deployed. So you can only do that for the long term, if you grow. So the thesis inside ADI is to be able to drive long-term profitable growth. That's why we spend at that level. And I think, as I mentioned earlier, I'm very, very pleased with how Hittite has been able to roll into ADI. We've been able to bring the scale that they needed in terms of manufacturing, in terms of go-to-market, in terms of R&D, and we've doubled the size of that franchise. What was a $270-ish million revenue -- trailing 12-month revenue company when we acquired them, that's generating well over $500 million a year now for ADI. So my sense, Stacy, is the opportunity is there, the pipeline is there. It's now a question of how effective we are in a world of more pervasive analog, more pervasive physical to digital interconnectivity, how well we convert that pipeline.

How does that competitive environment play out, I guess, both with kind of your traditional competitors as well as China? The China vendors, is there, in general, having an increased push towards self-sufficiency, especially given everything that's going on right now?

Yes. Well, first and foremost, so there's a couple of questions there. I'd say in terms of how we line up against traditional competitors, I think we're the franchise that others follow. So we like to play in the cutting edge. We want to play -- we want to solve the hardest problems; really, really stretch our technology; and bring analog and mixed-signal solutions and power solutions that really delight our customers. I mean that's our game. We want to be out on the front, out on the leading edge. When it comes to China, I think there's no question that the indigenization force is going to get stronger. All that said, I believe we'll be doing business there in 10 years' time, 20 years' time, and it has been the same for the last 50 years of ADI's history. When somebody wants -- when a customer wants performance, and performance really matters in the analog business, ADI will be the first call. And that will be the same in China, I believe, as it has been in Americas, it's been in Japan, as it has been in Germany, wherever it is. That is our thesis, and the evidence is strong that, that will continue to be a good thesis in the years ahead.

Got it. And I guess, just to be clear on that or just to follow up on something you said before, none of the commerce department rules, the new changes around military end user or anything have any impact on your ability to sell any of these products to China, especially the microwave product? Because I know on the new regulations, microwave semis were mentioned.

Yes. So I think most of the efforts in the latest rulings are about disabling the indigenous silicon supply to one -- to Huawei specifically. As we have viewed it, and we've obviously taken a lot of external advice as well, we don't see any impact on our current ability to ship product into China.

Okay. That's clear. I want to touch on a topic that's becoming increasingly important for a lot of my client, ESG investing. Can you briefly talk about your -- kind of your corporate responsibility strategy? What you may be doing different today and going forward around those issues? I know you guys just filed your ESG report as well, maybe talk a little bit about that. What are the material kind of ESG issues, whether risks or opportunities, that you've identified in the business? And how do they link back...

Yes. Well, I think it's a great question, Stacy. So I would say, first and foremost, ADI has always been sustainability conscious. We -- you look at the various assessments, third-party assessments out there, we tend to get well-regarded and rated. But we've decided and there's a groundswell of desire within the company, more and more of our investors are looking for a very, very specific and definitive approach to how we manage ESG thinking and actions inside the company. So I would say sustainability has always been the root of ADI, but I don't think that's enough, actually, going ahead. I think we have to, as a society, say COVID is a real problem, but this -- we'll solve the COVID problem, but the whole climate problem is really existential. And we've got a -- we've all got to figure a way. We've all got to, as individuals, companies, governments really get our heads together and figure this problem out. So we decided that sustainability is great, but taking the approach of regenerating the environment is really what we ought to be doing. And there are some very interesting ideas for how, for example, the oceans will be used for sustainable farming. But not only that, we get the benefit of being able to absorb carbon if we get the right plant structures, the right biomasses in the ocean. So first off, all I've done is give my people a platform to express what they think are pillars of sustainability and ESG are. So the pillars are really basically to protect and regenerate the environment, to empower people across our own enterprise, our societies, for example, expanding training and accessibility education in marginalized communities globally. And also, we've set up a foundation within ADI recently, and the first primary engagement there is really supporting the World Health Organization and working with mass general hospital locally in the fight against COVID to find the cures, the vaccines, to find -- to use sensing and digital and machine learning technologies to improve our ability to detect and deal with such pathogens as COVID-19. So -- and as you said, the -- we've actually put out what we think is a pretty thorough blueprint called Engineering Good that you referred to a little earlier on. So I would refer people who are looking for more detail on what we're doing to take a look at that. So I think we're in the early stages of being a better steward, but we, as a company, are going to take a leadership position here. And I've got to say, I'm actually quite impressed as well. I've talked with CEOs at very, very large consumer corporations, airlines, my peers in the semi industry and the tech industry at large, and I'm quite impressed with the thinking and the movement that is now taking place to become a -- to get corporate and citizenry working to really get at tackling this climate problem.

Got it. I'm going to ask you a question, this is a question that Bernstein would like us to ask to every CEO around COVID. They'd like to know how you expect your priorities to shift, especially as they relate to either cutting costs or increasing levels of investment, as we think through and beyond the current pandemic.

Yes. Thank you. We are making sure that we -- the first call on our capital, Stacy, is making sure that we can fund the R&D programs and the customer engagement programs that matter to our future. So we have -- we are keeping our OpEx steady. We are making sure that we invest in all the things that we think are critical to driving long-term profitable growth and really making an impact on our customers. So we have, obviously, in terms of how -- the other uses of our capital, the dividend is a cornerstone of our return to shareholder activity. We obviously are making sure as well that we have the liquidity. No matter what happens here in terms of the next 6 months that could be very, very turbulent, given just the economic conditions that we have the capacity to meet our debt obligations. So I think we've taken -- we've got a good cash flow structure in the company. We've got the liquidity that we need to be able to do all the things we need to do in terms of making sure we keep hold of the long-term strategic health of the company and also meeting our commitments to our shareholders and elsewhere.

Got it. I have a question from Pigeonhole on the Xilinx RFSoC litigation on how did customers respond, especially when it comes to any changes to their RFPs or design reformatting? Or is this just a wait-and-see approach? Like, what are customers saying in the wake of all this?

Well, it is being litigated right now. We're staying very, very close to our customers. The -- unfortunately, the courts have got a hold of it now. That was never our desire. So it is -- we have the strongest portfolio of mixed signal technologies out there. We're making sure that we win everything available, no matter who the competitor is. So time will tell how that transpires. But we are all the time strengthening our portfolio and competing aggressively with whoever it is.

Got it. So one more question from the lightning round here, more around the near term trajectory. And the question of whether or not Q3 might represent the bottom, given what you're seeing?

Yes. It's very, very hard to say. What I will say is I think that 2021 will be a growth year. I mean will it be the first quarter or the second quarter? I don't really know. So I think the bottom is somewhere between now and then, but it's very, very hard to call, Stacy, just given all the carnage that's still trying to make its way through the global economy. But look, if you take China and see what's happening there, that is the first economy to reopen, if you like, first significant economy to reopen. Things are getting back to a level of normality. And I think tech -- as we were talking about at the start of the conversation here, technology, in general, will be one of the beneficiaries. And technology is pervasive, it will do fine. It's just a question of is it next quarter, is it 2 quarters' time, 3 quarters' time? Very, very hard to call that. But my own sense is that there's enough evidence to suggest that 2021 will be a growth year. And I think as well, all the liquidity that has been pumped in by governments globally will enable us to bounce off the bottom faster than, say, 2008, 2009 recession.

Got it. So we have 30 seconds left. I'm going to give you your soapbox. Why should investors buy your stock?

Well, I think, first and foremost, the things we do, the technologies we build are really, really important to every aspect of our lives. We play on the high end of that game, which attracts, I think, great, great financial returns. We're highly diversified. And the things we're doing are more and more important to our customers, to our society, to our economies and to our customers. So I feel that the things we do now are more important than they've ever been.

Got it. That's wonderful. I think we're out of time. Vince, I want to thank you so much for joining us today.

Thank you, Stacy. We look forward to seeing you again in person as soon as possible.

I hope so. Take care.

Take care. Cheerio. Good luck, everybody.