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

Hi, everyone. Welcome back to the Goldman Sachs Global Semiconductor Conference. My name is Toshiya Hari. I cover the semiconductor and semi cap equipment space here in the U.S. for Goldman. For our next session, we're very excited to have Patrick Morgan, Corporate Vice President of Automotive, Electrification and Sustainable Energy; and Michael Lucarelli, Vice President of Investor Relations from Analog Devices. The session will be approximately 40 to 45 minutes of length. I will kick off with a list of questions. For those in the audience who would like to submit a question, please drop it in the Q&A box, and I will do my very best to weave it in. With that, Patrick and Mike, I'd like to get started. First of all, thank you so much for the time, and thank you for supporting the conference.

Definitely, glad to be part of it. Happy to be here.

Great. So Patrick, I wanted to start off with sort of a high-level question. You joined ADI from a competitor a couple of years ago. What drove your decision to make the move to ADI. And I know it's been a little while now, but what surprised you the most about the company's capabilities?

Yes. Thanks. So I've been here over 3 years now. And Analog Devices has a really proud and rich 57-year history. It's known as a fantastic analog semiconductor company. What I've been especially impressed with over the last short -- relatively short time that I've been here is the way that we approach problems is a very system-focused, holistic type of approach. And the types of solutions that we come up with are based on analog chips that we have, but really go beyond into the digital, into the software and really into holistically around the system. The company has put out some amazingly complex digital chips. And then my team, in particular, has a fantastic software expertise. So it's these additional qualities, and I think the team expertise that we have that was a really pleasant surprise.

That's great. And then I wanted to ask a high-level question on Automotive, obviously, a business that you run. It generated roughly 2.5 -- $2.2 billion rather in revenue on a trailing 12-month basis. It's roughly 20% of ADI's total revenue. I definitely want to spend a lot of time going into the individual products and applications. But I was hoping you could level set the audience by breaking down your business into your franchise business and your growth business. I think you kind of defined it that way at your Investor Day. And if you could remind us of your through-cycle revenue growth expectations for the overall Automotive segment and sort of the growth algorithm, how you're thinking about units and how you're thinking about content, that would be super helpful.

Sure. Yes, I can make some qualitative comments, and then I'll pass it over to Mike to make -- to fill in some of the numbers. So you're right, we have growth businesses as well as franchise businesses. On the growth side, connectivity, GMSL, A2B and audio, I would look at all 3 of those areas holistically because the next generation of car architectures is moving from what we call domain-based architectures into something called zonal architectures. What that means is there's more processing at the edge and more connectivity across larger zones. So we have a very compelling and exciting group of products that connect up audio and connect up video -- high-speed video and raw data. That's growing really strongly according to the zonal-based trend, but it's driven by ADAS. It's driven by increasing audio complexity all around the vehicle. And then the other part of the growth area that I would spike out is around electrification. So that's BMS and power. For power, for us, what we mean is automotive power that's also safe. So we see a trend where more and more content in the vehicle is becoming driven by the need for safety. And it doesn't just mean safety in terms of -- we're used to the concept that brakes need to be safe or even radar needs to be safe. But actually, it turns out that your display needs to be safe because it's your display that is showing, for example, your rear backup camera when you put your car in reverse, you don't want the display to wink out just at the time that maybe an object is coming behind the car. So we see safety as a part of a larger trend that impacts Automotive, and we are investing to make sure that we capture that trend. And it's also something that as we've now integrated with Maxim -- with the Maxim business that we see a very strong portfolio that we have covers a lot of different applications that I can talk more about. And then I touched a little bit on BMS, but the whole electrification megatrend, electric vehicles, we see that continuing to far outgrow the broad automotive market. All of the major OEMs continue to stay committed to the space and we're the market leader in BMS. So we're riding along that way, but also continuing to innovate and launch more and more products.

I'll add on the number side of it. You're right, Toshi. If you look at our revenue, call it, just over $2 billion, well half of it is that growth there is that Patrick has outlined. The other half of it is more, call it, franchise, which really relates to units or production of vehicles. And our long-term growth expectations for Automotive is kind of low teens. And that's over the next 5 years, we expect to grow in the low teens rate, Patrick thinks he can do better than that, I hope we do. I think if you rewind the clock back in ADI, I've been here now for 7 years. Up until the past couple of years, has always been -- everything is doing good, except auto. It's amazing how if you look forward, I think auto should be segment. I give Patrick and his team a lot of credit for investing in the right areas. We also added Maxim to increase our portfolio, and it should be a great business for us for the next 5, 10 years if not longer.

Got it. And as a quick follow-up to that, Mike, I think passive safety historically had been a headwind, and that's now sort of abated and less of a factor going forward.

I would say, it's still there, passive, what's a headwind in our bucket. And that headwind is including that 13%. We have some of the passive safety, think of airbags, old technology, legacy radar stuff as well. That's probably about $100 million plus or minus. That's not growing. But as we look out, it's small, right? It used to be a lot bigger percent of our revenue, it's smaller. And even when you think of that kind of drag on growth, we're still growing that business in the low teens.

Got it. Super helpful. And then I guess diving into the key growth drivers, you just highlighted and also highlighted at your recent Investor Day, starting with BMS, Patrick. Can you talk a little bit about your TAM expectations, again, both in terms of EV units and also your content opportunity. And importantly, kind of the competitive landscape you see in BMS, obviously, you guys classic ADI with Maxim, obviously, a very powerful force. But what are some of the advantages that you guys have vis-a-vis your competition? And then last but not least, talk about the wireless BMS opportunity. Obviously, that's a big growth driver for you and the content implications.

Okay. Let's do the market first. So electric vehicle production, we modeled at around 10 million units this year. What electric vehicles mean to us is anything with a plug. So it means full electric vehicles as well as the plug-in hybrids. We see that at around 10. That seems to be pretty well correlated, I think, with what most everybody else has. And then as we look to the future, next 5 years, we expect that to roughly triple. So growing at a CAGR of about 25% per year is what that translates to. That's all for production. Obviously, in terms of vehicles on the road, that ladders up because the lifetime of these vehicles can be 5 to 7 years or longer. In terms of the advantages -- the competitive advantages that we have over the other competitors that are also in the space. First of all, we were the first to market. If we just focus on battery management systems for now, I mean the battery is the heart of the electric vehicle and the electronics that go around the battery, that's what keeps the battery safe, and that's what puts the energy in and out of the battery. So this was recognized early on actually by Linear Tech. And back in those days, I think it's about 2000, 2008, they had the world's first production battery management chip. So 14 years later, here we are in a market that's really taking off. But sometimes these cycles take a little while. And so the business stayed relatively small for the first 10 years or so of its life. And only in the last few years, has it really been -- we've been taking off. What differentiates us? So first of all, we were first. Second of all, we've gone through now 7 generations of BMS. We have the most sophisticated BMS on the market. We have the best performance. Customers tell us it's the best accuracy in the world. But even more than that, it's how we interact with customers. It's how we approach their problems. We come at it from a systems perspective. So what that means is they may say, "Hey, I see this issue, and it's because of your guys' chip." We work with them and we diagnose the problem. We want to understand. A lot of times, it's not our chip, it's something else about the system. So what have we done because of that? Well, we've continued to build, I'll call it, an infrastructure of systems and software and lots of different types of services, even you could think of it as additional benefits that our customers get when they work with us. For example, we can make software packages that work directly with their system that are already sort of precompiled and preloaded to work with our chip. So customers love that. Those that aren't still -- aren't using us, can get to market very quickly with us. And then they're also assured that it's going to be backed and guaranteed by our team. So that's just one advantage of how we work with customers. And I think that's a really strong advantage. The last advantage that I would say is just around safety, security and quality levels. I mean these are automotive parts. These aren't easy to do. You can't just take the consumer part and pop it in. You've got to go at this with a very different mindset right from the beginning. You've got to like define it deliberately and design it so that you can run it in production with really high volume and near perfect quality. I mean it's a really hard thing to do, and it's something that our team has really turned into an operational machine with. So I'm really proud of that. The last bit is around innovation and staying ahead, we're constantly pushing the bar. So it's not just ASIL-D or safety, but it's things like different types of use cases. So what's happening is the batteries -- battery management systems are getting used in lower-end vehicles. What that means is the automotive environment is fairly hostile in terms of like electrical sources of interference. So we've developed a technology that is robust and maintains its accuracy even in the a super noisy environment. What that means is it's just easier to use. So customers can put it down. They can run it through all sorts of very -- sort of nasty hostile use cases, and we just stay steady. So performance is great, but it's just the ability to innovate despite the pandemic, despite the supply and huge demand that the industry is going through. The team has done a really excellent job to continue to stay focused on and keep raising the bar.

Great. And Patrick, on wireless BMS, I think you guys have been public with a couple of customers, but can you talk a little bit about the traction you're seeing there and how we should think about the proliferation of wireless versus legacy BMS?

Yes. So the value proposition of wireless is really interesting. Let me start with that because it's maybe not intuitive. First of all, the wireless builds on the wire. So what happens is you still have chips that are connected to the battery and those chips are precisely measuring voltage and current going in and out of the battery. But what the wireless does is the way that all those chips are connected together, you can connect them with wires or you connect them with a wireless network. If you connect them with the wireless network, then what you can do is actually build those batteries as chunks of batteries, battery cells and then you can scale them. You can put them into different shapes, you can put them into different vehicle models, basically. So when you look at the GM platform, for example, they have a video that's on their website, they've been public about how they use our BMS in their Ultium system. What they do is they put their pack and number of different configurations. If it's an EV Hummer, it's a big kind of rectangular battery pack that you could visualize. But then if they -- when they turn around and put it in the Lyriq, that's a different type of configuration. It's not as big a vehicle and it's a little bit of a different shape. But they're fundamentally using the same battery modules. So that's the benefit. And GM saying that they're going to -- they've set a very aggressive target for proliferating out Ultium across lot of different form factors, the Silverado truck, and there's a bunch of other pretty cool vehicles that are coming out. All these things relying on the same fundamental module. So what that means is they design it once, they get it working and then they can proliferate. So that's the value proposition. And like everything else that I've talked about already, it's really hard to do. It's got to be perfect. It can't fail. It's got to be in always up connection. It's got to work in the presence of interference. It's got to work in the presence of temperature. It's got to work across a bunch of different battery types. And so that's a challenge that took us a while to do, frankly. We did a first demo about 3.5 years ago at CES, and that was just a proof of concept. Anybody -- pretty much anybody can show something like that, but to actually get that in production took us several years of focused effort on rebuilding that software from scratch, designing custom hardware and then just making it work. And now like you said, we've got several customers, and we look forward to announcing more.

And Patrick, outside of cost considerations, anything that could get in the way when you think about the transition from wired or legacy BMS to wireless? It sounds like it's a no-brainer from a customer design or a customer experience standpoint.

Well, not everybody is going to go for wireless. Some customers, it depends on what their fleet looks like, what their lineup looks like, what their design philosophy is for the battery pack. For OEMs that want to get to market quickly and scale it across the fleet, then it's a fantastic solution. But other OEMs, if they're fine, having relatively few numbers of vehicles in their fleets, for example, relatively few models, they don't necessarily get all the benefits of wireless. They'll get the wire savings. They'll get fewer points of failure. Those things are quite valuable, but maybe they're risk averse. Maybe they don't want to be the early adopter, maybe they want to wait a few years. And that's all fine. We support both and we go after both, and we innovate on both. And then the last benefit that we're doing is we're actually taking all of that technology and going one step further into what we call the battery life cycle initiative. So what that's going to mean is what's -- you might ask yourself, well, what's the next set of things that the OEM wants to do. They've got electric vehicles out there, they're scaling their fleets. They're also going to want to make sure that those batteries when the car reaches end of its life, that the batteries don't all end up in a landfill somewhere. You've got to go do something about batteries. So you could sell it back to the OEM, you could maybe sell it back to a third party. Those business models are emerging. But the technology we're developing is built on top of BMS and wireless BMS. And what it enables you to do is to understand the state of health and state of charge of the battery throughout its life cycle so that you can effectively monetize that battery pack asset when the vehicle reaches its end of life. So that's pretty exciting. It evolves like cloud algorithms and computations and so on. And I think we're just at the beginning stages of where that's going to take us.

Got it. Shifting gears a little bit. I guess in A2B, you've highlighted road noise cancellation as a pretty big growth opportunity for you guys. Can you talk about the customer traction you're seeing here? Again, I think you've been public with a couple of customers, but what kind of momentum you have in this business? And how significant of a growth driver this could be for your overall automotive business?

Yes. Well, road noise cancellation is kind of fundamental, actually, if you think about it. And so on this particular feature, I would say we see this becoming standard on all vehicles. We announced it with Hyundai. We develop the world's first all-digital road noise cancellation. What does that give you? What that gives you is when you're in the vehicle and especially an electric vehicle, the main thing you hear -- you don't hear the engine noise anymore, but you do hear the sort of the noise as the tire -- as the vehicle contacts the road. So what the road noise cancellation does is basically just gets rid of that noise and it allows you to have -- you're going to have better voice quality across when you're on the phone, when you're doing your hands free, when you're interacting with the vehicle through voice, of course, with music as well. And that's why we see it becoming a standard feature. It's just makes everything better. It's all digital. So what that means is it uses an ADI processor with A2B. You put all that together, and you got some kind of clever algorithm there and some clever sensing elements, and out comes a better audio experience in the vehicle. So we're really excited about that one for sure. But I'd say that's just again, just the tip of the iceberg, that's one example of what a full system can do. At our Investor Day event, we also showcased a vehicle that has been equipped with Dolby Atmos. So Dolby is -- Dolby Atmos is pretty much the standard for high-end audio. It's coming to vehicles as it's been in home theater, obviously, and in regular theaters for quite some time. And when that type of immersive experience comes into the car, that's yet another example of where sophisticated audio processing and with great audio connectivity, that can create a really powerful and special experience in the vehicle. There's audio zones that are coming. There's voice interaction with the vehicle that's coming. And all of this is enabled with our technology around connectivity and processing together.

Great. So I guess we tend to spend quite a bit of time on BMS and A2B, and I think a lot of investors do as well. But as you pointed out at the beginning of this session, you've got video connectivity, you've got functional safety power as important growth drivers as well. Can you expand on those 2 applications, again, the customer traction you're seeing and the growth opportunity?

Yes. So let's take the GMSL first. So this was a technology that had been refined and perfected by Maxim. So when we came together as one company, we were really excited to take a look under the hood of that technology and really see what we could do. And what we noticed actually was the technology is fantastic. And when you pair that with our customer base, actually, it creates a really positive revenue synergy opportunity by the ADI's customer coverage and Maxim's GMSL technology. What does it do? It basically passes high-speed data around the vehicle. It does it in a very fast, low-latency deterministic way. In terms of customer traction, I think I've got to like turn it over to Mike to know exactly what -- how many of the top 20 were actually designed into GMSL...

12.

I thought it was 12. I didn't want to mistake that. And so we expect that to grow because of the synergy that we're talking about. So we're super excited about the technology. And again, it kind of fits with this mega trend of ADAS, of data around the car and in video, by the way, screens. One of the vehicles that we showcased at the Investor Day had one of these large kind of ultra high-definition screens sort of in a kind of like a curved shape. And there's a lot of data that has to be delivered from the electronics and shown in real time, not just like things like video or like I talked about the example of the rearview camera and some of the other videos and things on there. But you want that to also kind of be perfect. And so we actually see an application of GMSL on displays, on large displays. And we see that trend just continuing as well. So yes, super excited about the GMSL technology. For the safety power, I touched a little bit about the mega trend there, everything becoming safe. We have a really broad portfolio of power. We break it down into 6 different major application areas. I'm not going to talk you through all of that, but definitely would direct everybody over to our website, where we have a lot of the different parts out there. I would also say that historically, Linear Tech and Maxim, in our industry, in the semiconductor industry, these were the 2 premier names for power. So by combining forces, all under the ADI roof plus with the automotive expertise and the coverage that we have, it really gives us a very powerful portfolio. And again, it's -- we tend to be ahead of everybody else in terms of our ability to just do very special things in the power chip, whether it's accuracy, whether it's switching frequency, whether it's coverage of ASIL-D safety, we've got a large portfolio and we continue to innovate in these areas. And it's just a super exciting time for power. And it's also something that I just continue to see more and more opportunities just because everything -- it sounds like a silly comment, but it's true everything needs power in the vehicle. And if it needs power, then it very likely needs to be safe. And if you need safe power from -- it could be an SoC that's consuming a lot of power, it has to power -- it has to sequence on at the right time, or it could be a radar sensor out at the edge of the car that has to like have very perfect sort of power delivered to it so that doesn't mess up the radar signal. All of these different types of applications all around the vehicle, those are some examples of what we service, and it's a great time to be at ADI for this, for sure.

Great. And then Patrick, we talked about BMS. You touched extensively on GMSL. I was hoping if you could comment on sort of the Maxim integration, how that's going. Has it helped you in sort of gaining customer mind share. Obviously, you guys have kind of laid out the revenue synergies for the overall company going forward. But how should we think about those synergies within the context of your business?

Yes, I mean, I touched on one of them before with the GMSL, the combination of the technology and ADI's market coverage. There will be other synergies for sure that will come out later. We'll be happy to talk about those. How is the integration going? It's going really, really well. The teams are working together really well. The road maps have already been consolidated and defined. There were a couple of cases where we would have had duplicate road maps because we used to compete. So for example, on the BMS side, the Maxim road map and the ADI road map, we're sort of in parallel, but that's all been harmonized. Everybody is super happy with the results and really excited to work together. It's pretty cool, right? Like automotive, in a lot of ways, it's just not that big an industry. And when you do something like BMS, which is very specialized, very difficult, you start to know who the other strong competitors are out there. And so the guys were already -- had developed a very healthy amount of respect for each other. And now to be on the same team, it's worked out really, really well. And it enables us to do more, which is super exciting. And then on the power side, that was the other area where we joining forces, we definitely got bigger and stronger. There's been some fantastic things that we've already adopted on both sides. So for example, on the Maxim side, there were some processes that we've kind of like development processes that we've integrated into our flow, and then vice versa, ADI just gives a lot more scale compared to where Maxim was headed. So there's -- we're taking the best of both worlds. We're taking pieces of innovation. We're taking road maps, putting them together and then just creating one really strong team. So it's gone really well.

Great. And then I wanted to shift gears a little bit and get your thoughts on the cycle. Mike, I'm sure you get these questions all the time. So maybe you're the go-to on these. But obviously, investors are concerned about the macro and what sort of kind of ramifications that could have on the cycle broadly, but also auto semiconductors as well, not just yourselves, but the broader industry has outperformed global SAAR or auto production by a pretty wide margin over the course of the past 12, 18 months. So I guess the question is, based on customer engagements, your current backlog, how sustainable is current momentum that you're seeing in the business? And how worried should we be about excess ordering and that's sort of coming back and biting you guys?

Do you want to grab the customer side, customer conversations, and I'll take the numeric side?

Sure. Customer conversations. Supply is tight. Demand is high. And in terms of like rationalizing what are the real -- is there over ordering happening and all of that, Mike can talk to that, but that's something that we've made sure to work very closely with our customers. Our customers have given us points, I'd say, positive comments. There are several different things I could point to. One was an executive meeting where they said they were extremely grateful for how we've gone through the process together, the fact that we've been able to be transparent in our communications and we work with them and actually make improvements as we -- as the demand has just really spiked. And they recognize that and actually, they've given us more sockets that actually we didn't expect, but we're happy to receive. So other -- we've had numerous instances where other suppliers maybe who haven't been as rigorous on going through the supply chain and making improvements as we have, where they fell down a little bit, we've directly benefited from that and picked up some extra business. So that's been great. The transparency I talked about, that's also been -- I'd say that's been a theme. And then I think the last one has just been working together, continuing to build business for the future. It's not like the supply constraints are overshadowing the next wave of design-ins. Design-ins are still happening, right? And so the business is still continuing to grow, and we're very comfortable with where we are in that cycle. Our ability to help on the supply side helps on the longer-term business side and vice versa. So that's gone really well.

Yes, sure. So I'm going to say you're right, I get a lot of questions on it. It's a good question. Auto semis are growing 30% plus, production, call it, flat or up some. There's a huge delta. I don't know what the peers have been doing, but how do we get comfort over that delta and why do we think it's -- I don't know, maybe that whole delta is not sustainable forever. I don't think we'll grow 30% every year. Maybe we will, we'll see. But what I look at is say, okay, there's a big delta between production and our revenue. If you look at the pieces like BMS, A2B, GMSL, mix. Mix is getting a lot better from a high-end vehicle standpoint; and pricing, that explains that full delta. So the rest of our business is going up and down with production and SAAR, but that growth aspect of our business is what's really driving that delta from 0% to 5% to that 30% plus we're seeing for ADI's business. And Patrick touched on it earlier, think of like every car, there's more radars going in every car. We ship into all those radars basically with GMSL. So as you get scale that way, and we're adding more content per radar system. Same thing on infotainment. There's more and more speakers and microphones and we're adding more content of road noise cancellation. So there's a lot of content and increasing units for across our business. So no we'll always grow 30%. But explain the current delta today, and we think it grows kind of that low teens rate over the long term.

Got it. Got it. No, that's helpful. And then, Patrick, I guess a follow-up question on sort of the customer engagement side and sort of the visibility that you're getting from customers. Obviously, you've been in this business for a long time. Does it feel like the visibility you have today relative to 5 years ago or 10 years ago is significantly better? And if so, what's changed? Is it sort of the frequency of updates that you get from your automotive customers? Or is it so the duration, right, maybe previously, they would give you a quarter or 2 out, sort of in terms of demand forecast now it's multiple years. Can you speak to that sort of evolution in terms of your visibility in autos, if you will?

Yes. Yes. Well, what we're going through now, I would say, is pretty unprecedented in terms of the pace of the ramp-up of demand. It's been very large. And the entire supply chain has had to just sort of struggle to keep up. And what that means is those who are agile and can react quickly are going to do well in that environment, plus those who get in front of things as we did. We made a number of investments and other types of arrangements early, so that we could -- because this we saw this situation coming. So I'd say that's part of it. The other part of it is in terms of visibility, I think now there's always been a focus on risk. The automotive industry historically has always been kind of a risk-averse industry from a standpoint that it's got to work, it's got to be perfect before they adopt it. And then once you're in, historically, the business has been very sticky. I would say from a risk standpoint, that still is there. However, if you can't get parts from one supplier, you're going to be turning to others that can supply those parts. So if there are certain applications where there's that gap, then something has to go fill that gap. And the second piece of it that I see is the desire for the OEMs to have inventory. I mean that's -- they're hungrier than ever to try to build their inventories back up. And I think we're going to stay in this situation for a while as that kind of ripples through. But I would say in terms of getting demand forecast and this kind of stuff ahead of time, automotive, we've always had pretty good visibility, a pretty long-term visibility on the order of years to be able to predict. And of course, we cross check it with our own models. But I would say it's beyond just the visibility problem and into more -- or visibility challenge and into more around risk, the appetite for risk. And the other thing we see is that the design cycles are going faster. So the innovation cycles are happening faster. The refreshes are happening faster. And I think as we go through this situation, mix is also changing. So Mike touched on it. But the mix of vehicles is going to continue to change, and we've -- some OEMs have been public about canceling certain models that they deemed weren't going to be very profitable or weren't really going to work. I think that's going to continue. The other thing that I think is happening is the whole ecosystem overall is changing. You've got the Tier 1s, you've got the OEMs, you've got the semiconductor companies, but then you've got software companies, you've got partners, you've got a large and growing ecosystem. So that disruption is going to continue to go as well. We're going to continue to see OEMs need to stay ahead and need to get in front of all these things. So going deeper into the supply chain working directly with customers like us, that trend is going to continue, too.

Got it. That's super helpful. And then I wanted to take a question that I just got in my inbox that's somewhat related to this topic. So the question is Tier 1 auto suppliers have been pretty vocal about the need to redesign products to combat supply issues and rising costs. Has ADI been a beneficiary of this type of work? Or have you been impacted by customers wanting to redesign certain modules because of chip shortages?

I really haven't seen too much of that. Redesigning because of chip shortages, I haven't seen that. I've seen it's more around maybe filling a gap within an existing design. The example I gave you before where some of our competitors couldn't supply and we could. That enabled us to pick up a few extra sockets. What I have seen also is a better job on 2 fronts. The first front is just understanding the semiconductor cycle. I think that, that was maybe known in some parts of the supply chain, but not throughout all parts of the supply chain. And I think now that OEMs have a much, much, much deeper appreciation of that. Some were always good, but others are pretty much all with the program now. They understand what it takes. And so the industry has always had lead times. The second way that the trend that I've seen is that the OEMs are also getting much better at matching their systems. So you make a system. Okay, let's say, it's got 50 or 100 different types of chips in there. Well, if I have all of the 49, but I don't have number 50, even if number 50 cost $0.02 and the whole thing costs -- it could just be a passive component. It could be a resistor, capacitor. If you can't get that, you can't ship that whole thing. We've seen the industry, I think, get a lot better at that. That's a very hard problem to solve. And it's a very complex problem to solve. It extends beyond us as a semiconductor supplier and into the system. And I'd say I've seen the industry kind of get a lot better at that. So I think there was -- what was it, Ford, I think, had vehicles that they couldn't ship, that were sitting idle on the parking lot because they missed a few components. I think that is -- that stuff, I think, is getting behind us.

Right. So as a quick follow-up to that, Patrick, so you just talked about some of the [indiscernible] perhaps your customers were experiencing a little while ago, they're getting better at sort of solving some of those issues. But at the same time, my guess is your customers have been trying to build ship inventory, but because of these shortages and tightness that you really haven't been able to. How would you -- I mean, to the extent you know and you have visibility, like how would you assess current inventory levels at the Tier 1s and the OEMs from a chip perspective? Is it still pretty low? Or is it kind of on the increase?

Well, I think everybody wants more inventory. So I would say that appetite is still definitely strong. We have some visibility in that, of course. But I would say it's still lower than what we expect it to end up being. I don't know if you want to...

Yes. No, I mean, if you look at the -- especially the OEMs, you look at the OEMs and online inventory is super low. If you look at the SAAR reports, every finished good inventory is very low. Is that something out there here and there? Some, maybe. But honestly, it's not. Customers continue to call. They get to Patrick, if they're past Patrick, they get to Vince sometimes too as well. Those calls haven't slowed down, which is very indicative of what they need -- is needed to make production cars and not going to inventory.

Got it. That's super helpful. And then lastly, I guess, on pricing, which is related to perhaps your last comments. It's been a nice tailwind for not just ADI, but for the broader industry. I think you guys talked about pricing perhaps being less a tailwind into the second half. I'm probably paraphrasing a little bit. But specific to automotive, how should we think about pricing dynamics? Obviously, customers never want price hikes, but at the same time, I'm sure they're understanding of what's going on. But for the next, call it, 6 to 12 months, how should we think about pricing in your business?

I'll grab the first part and Patrick can talk about just kind of negotiations or how customers are feeling about it. You're right, Toshi, we did have price hikes in the first half of the year. That was to offset the cost inflation. So we weren't increasing our gross margin. We're just passing on the cost. And as you look at 1Q and 2Q, we saw both volume increase and also prices driving the revenue growth. As you go to the back half of the year, no new pricing. So it's really just unit volume going in the back half of this year. And then Patrick, do you want to talk about just kind of how the competitions have gone with the customers about pricing?

Yes, they've gone well. I mean, like Mike said, we've passed on our costs. Everybody understands the situation. We've been told that we're lower than -- either same or lower, which, I think, is kind of reflecting of where our position is in the space. So that makes sense to us. And I think -- what we've also seen is that the price of everything has gone up. So I think there's no doubt about that. So the vehicle prices themselves have gone -- used vehicle prices have gone up. Price of everything has really come up. And that's just sort of the mode that the industry, that the world is in right now as we go through this. So I think that that's gone well. The key to getting through something like that is, number one, no surprises; number two, transparency; and then number three, executing on the commitments that you make and that's what we built the business on. And that's what customers come to rely on with us. We make a commitment, we follow through on it. And I think that's been really well received.

I think the one thing that's happened over the past 2 years is the value of semiconductor to any customer, auto or any customer has shown how valuable it is. I read somewhere someone interviewing a car OEM, that said we can't make a car from a dollar [ part ]. Can you believe that? And the interviewer said, well, it's obviously worth more than [ dollar ] now, isn't it? And I think that kind of mindset where like there's a lot of value in semis. And maybe over the past decade, we've been giving some of the value away, we're capturing more of the value and you're seeing the benefits of that.

Great. So it seems like the industry is still, from a perspective, is tracking well. You guys are executing well. Anything else that we should have touched on about your business specifically, Patrick, that you want to highlight before we close?

Maybe we could just touch on a little bit on what's going on the other side of the wire just from an electrification perspective, because I think it is an important part of -- as you think about ADI -- to think about us as we go after markets holistically and not just opportunistically. So we talked about auto, we talked about vehicles. We talked about trends, talked about electric vehicles. But what's all on the other side of the wire is equally important and equally fascinating. You've got clean energy sources coming online. You've got the grid becoming decentralized. What that means is individual little solar stations, community solar here and there, that trend is going to continue. And the other thing to think about is, with all these electric vehicles getting plugged into the grid, how does the grid need to be managed. In other words, when Mike plugs his electric vehicle into his house at night, it makes sure that it doesn't take all the power out of my house. And so that has to be managed. And we did an announcement recently with a company called Enel Gridspertise on the world's most sophisticated secondary substation that uses our components to real-time manage the grid and to distribute power in a way that has power for everybody. It's a fascinating trend, and it's something that's going to continue. Energy storage systems, reusing batteries into energy storage, that's something that our customers and obviously us are driving. That's going to continue. So I think just to put in a few words about that, I think, is probably the appropriate thing to do. And if in the future, if we want to go into a deeper session or something like that, we'd be happy to do that. I think there's a lot of really interesting technology, a lot of really interesting social impact and environmental climate change impact that's going to be coming out of that and the whole sustainability angle we see continuing to grow despite the economic fluctuations that we're going to enter into here. We see sustainability continuing to really be important.

That's wonderful. Thank you so much for sliding that in, Patrick. And thank you for the time. I very much enjoyed the conversation. And hope you guys continue to do well.

Thanks so much, Toshiya.

Thank you, Toshiya.

Thanks, guys.