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

Welcome, and thank you for standing by. I would like to inform all participants that this call is being recorded. Part of this call may also be reproduced at JPMorgan Research. If you have any objections, you may disconnect at this time. I would now like to turn the call over to your host, Harlan Sur.

Great. Good morning, everyone, and welcome to the Analog Devices on Corporate Series. This morning, we'll do a deep dive into the team's growing opportunity in the next-generation Gigafactories. We'll explore how the team leverages its strong position in factory automation, instrumentation and test and edge computing to drive a solid growth profile in their industrial business. My name is Harlan Sur. I'm the Semiconductor and Semiconductor Capital Equipment Analyst at JPMorgan. From Analog Devices, very pleased to have Martin Cotter, Senior Vice President of the industrial and multimarket segments for the team. Martin will give us an overview of himself, his responsibilities, take us through a short presentation. So good morning, Martin. Thanks for joining us today. Thanks for inviting me here to Wilmington, Massachusetts, the Corporate Headquarters of Analog Devices.

Good morning, Harlan. Thank you very much for coming and for taking part in this event. So yes, I mean I've been with the company quite a time, many decades, about 37 years-ish. I think at the beginning, it was very much a technical role designing semiconductor products. Hopefully, some of those products are still being sold. And then in the intervening time, run a few different businesses, about 2017 ran sales marketing across the company. And now for the last 2 years, I've been running the industrial business. So I have to comment that it is probably more exciting than ever to be part of the company in terms of what the opportunity we see. I'd like to share some of that with the audience today, just in terms of what we're [Technical Difficulty].

Thank you, Martin and Harlan. This is Mike Lucarelli, you guys know me, I'm not going do my introduction. Quick forward-looking statements, a lot of words, you guys to read on your own time. So we'll go quickly to the next slide. So before I pass it over to Martin to give us a deep dive on Gigafactory, I just wanted to highlight a couple of pieces of ADI. On the pie chart, you can see about 30% of our revenue is of sustainable use cases, those being industrial and building efficiency, which we'll spend some time on today, but also mobility and grid and communications. It's important to say there's a 30% part of our revenue today that's growing quite fast, and that will continue to grow as percent of revenue in the future. Looking on the right side of the chart, there's a big push to net 0, and the only way to get there is through 2 ways: energy efficiency and renewables. Today, we're going to highlight how we're getting a 2x on energy efficiency in the factory and Martin will talk about that. On the renewal piece, we'll do another deep dive on coverage series in the fall on that area and how ADI is benefiting from that area. So Martin, can you please kick off on energy efficiency?

Sure. Thank you, Mike.

Thank you, Mike.

So yes, this picture is something that really consumes us in terms of the mission that we're on. If you look at the world and what we need to do to get to 1.5 degrees, we're already at 1.1 degrees. So we're on a path to massively -- we can see that. We need to reduce our carbon footprint by about 80%. There's only one way to do that, and that means deploying our technology into industry to make everything twice as efficient as is today. Industry and buildings take about 50% of the energy of the plant. So this is a pretty major mission. It really inspires on our team and inspires me very specifically. Not going together with renewables, which will be a different event, I think we'll be able to explain what's behind all of this. But the world of Industrial is in a very different place because of this. Okay. So then just taking a little deeper look at this. When we looked at the spend behind this in terms of capital, what was about $2 trillion in 2020 is going to about 3x that in terms of the overall build-out of factories. So if you go back 10 years ago, Industrial really was mid-single-digit growth because what you got was the occasional factor being upgraded. But with this picture of the need in terms of multiple different areas, you see a big rollout of equipment as part of these factories. This is great for us. Things like making factories more efficient or making new factories more efficient. It means that there's a 2020, 2030, there's another 3x build-out on equipment. And the other thing we're seeing is the content that we have in that equipment would have been about 2% to 2.5%. Now it's about 3.5% to 4%. So just pick a couple of different legs to this set of secular trends. One is on the factories that will source more batteries, Gigafactories. So we're going to go deeper into that today. Secondly, semiconductors, everyone's heard about the Chips Act in Europe and U.S. Thirdly, there are much more disruptive, high-end manufacturing, which might require a laser deposition for things like joints for people or for engine parts, which is very high content, much more efficient. And thirdly, of course, we are seeing real spend now on the need to make factories more efficient. So that is very different before, it's not just maintaining factories. But it's significantly upgrading the efficiency of factories. So I think the very public one would be World Economic Forum with these lighthouse factories. I think we've had Schneider be very public with 4 different factories, each 25% more efficient. So now I think you're seeing end customers spend money on these major either new factories or upgrades of old factories. And that, for us, we have looked pretty deeply into each of these, gives us a 2030 picture of about $20 billion, which is very exciting, it is fundamentally based on digital factors. So this is the world of digital factories. Looking at what that means, just taking another little tick into that. Traditionally, operation technology had somebody walking around with a clipboard looking to see where their processes were taking down some temperature pressure is the process of the control. Now with this world of IT meeting OT, so information technology meeting operating technology, you have a very different factory. So first of all, the connection of the factory, the network of the factory must be much higher speed. So it goes from kilobits to gigabits. Secondly, the control -- previously, the control was plugging and pushing wires. So it was manual. Now that needs to be totally digitally switched. So things like IO-Link, we've got [ software ], making that whole network completely efficient. So that goes together with our time-sensitive networking and connectivity which gives us the gigahertz kind of rates. And then, of course, the whole objective is always on, always real-time information and the intelligent edge. So it's really to do with supporting a fully automated control in the factory, where robotic systems are very sophisticated pumps, much higher efficiency motors. It could be in-line instrumentation all driving for this newer, more sophisticated digital factory. So as you can imagine, we're pretty excited about this picture. It seems like a simple picture, but I think we're seeing a huge impact from our customers comment about where they're going to go with this. Whenever you've got IT meeting OT, you have to have a secure system. So security is required by the system. The intelligent edge is very much the enabler of efficiency. So our mixed-signal analog solutions now are gaining a new life. So it's a much higher deployment, much higher content. Just to be a little bit deeper into what it means for us. I just put a couple of examples up here. A lot of the control is based on precision technology. Of course, we have the leading precision space in terms of the deployment of analog, a very simple case like motor efficiency, 70% of the energy in factories. So factories -- mobile energy of factories are building to [ 50% ], factories of sales 35%. Of that, 70% is motors. So we're seeing the need for more efficient motors. And half of those motors are over 10 years old. It's incredible. What that means there are 10% to 15% less efficient than we can make them. Connectivity, this is really a long-range robust trusted connectivity. So it has to be defined time sensitive. It is 1 mile in a factory, in many cases. Precision measurement, of course, the world of digital factory means you have to trust the measurement. It's always available, always on, always real-time data that drives efficiency. The need for higher accuracy in terms of the measurement is a really difficult problem to solve, and we have a lot of history in being able to solve that problem. And one of the things I'm really excited about is the deployment of power. So Silent Switcher technology allows us to make the in-line measurement more efficient and the long-range connectivity system more robust. So all of these 4 different core technologies go together to drive the future of digital factory. So now just to apply that into one of the cases. So I think we picked up Gigafactory just to give a little bit more color. As everyone can imagine, I think the rollout of EVs means you've got to have a source for storage of power in lithium ion batteries today, but it could be a different battery technology tomorrow. So we're very heavily deployed in terms of this technology. But what's really interesting to look at is how this new generation, they tend to be the most sophisticated [ hottest ] examples of a digital factory. So it starts out with being the highest content for us. Any new factory that's being built will be a digital factory. In this case, we're seeing the need for 12x the capacity in terms of the rollout of availability of lithium ion by 2030. When you look at content, what you've got is lots of automated equipment. You, first of all, got the connectivity, the control and the edge. Then you've got a lot of automated equipment. There are some specific problems to solve with in-line measurement, which is much more deployed. I've just picked 3 examples here. There are 9 different process steps, which are in a digital factory. These 3 -- it's interesting that our customers are bringing us in now to talk about -- to talk to the end use problem so that we can improve these very significant areas of value for them. So the ones I picked here are coating, which requires higher precision on the control of the robot. So the robotic system needs to be higher precision. We need to be able to -- in many cases, it's in-line instruments that will be deployed to make sure that the uniformity of coating is better. It's a mission-critical instrument that will be deployed. So this is targeting as much as a 5% yield loss. So you can imagine how much that's [ indiscernible] to the end customer. Secondly, battery formation. We have already got a very strong technology deployed in automotive for battery management systems. This now is in the formation of the battery, the property of the battery when it's formed stays with it through its whole life. So it's very important. It takes about 20 hours of very controlled precise charge, discharge to form a battery. We would like to have that. So our faster precision, we believe, can help with this problem. And then thirdly, on the winding, having very, very long roles of aluminum to be perfect as part of the formation of the battery. We deploy in-line measurement to be able to look at where the defects are for that old system. So what it does is it reduces waste. So all of these allow us to be more aggressive about capturing and delivering on value. There are many more that we could go into. These are just 3 examples. So we are very excited about what today is a decent opportunity in terms of the business. But of course, it's going to grow at a very accelerated rate. It already is growing. So we believe that by 2030, about $1.5 billion is the expanded opportunity, about 3x what it is today for us and we're still exploring exactly what we can do and delivering value to some of these specific problems I've outlined. So all in all, a very exciting proposition. It is delivering to the sustainability picture. It's one of a number of different places that we are seeing value generated. Looking at how real the deployment is. It's already happening. There are many, many of these factories announced, $250 billion capital being spent by '25, $250 billion again by 2030. So this is a number of about 190 factories that we're already seeing. Of course, some of our industrial customers have high ambition on being part of this rollout. And they're sharing with us -- or we need to do to be part of this. So we're very excited about what this is doing. We see a path that derives a $45 billion annual spend of that outlining lending capital that I described by 2030. And we see that our content, as I described, is looking very positive. So this is an area that we're heavily invested in, a great example of digital factory and one of a number of examples. So just going a little deeper into content. As you can imagine, these factories have much higher flexibility, much higher precision and the control of robotics. We already have a position in robotics. If you go back 5 years ago, it was maybe about $100 of content. The robot really was a fixed robot with just some joint in position. It had this huge metal cage around it that wasn't very flexible. Today, we're seeing content be quite a bit higher. Precision torque, it needs to get a high precision on the torque to affect better outcomes in terms of the machining. Secondly, in terms of the arm, it's all much more process control. And thirdly, the connectivity, of course, it deploys something like an Ethernet solution or for vision systems it could be something from automotive like GMSL. And so we're seeing many technologies come into the today's deployment. And of course, tomorrow, we're seeing the high likelihood that, that page is gone, that the robotic system very much is flexible, autonomous and that means more content for us. So it is very well able to proceed, very accurate in terms of positioning and of course, then it drives better outcomes of some of those problems I mentioned earlier. So we're pretty excited about this kind of content increase. I think we went through this in automotive where ADI's content increased significantly. It's not too different from that, that we're seeing in terms of this picture with very much mission-critical problems that we're solving. Secondly, we don't think about this often, but to make that very sophisticated factory like a Gigafactory. The previous life was that you would sample a piece of the process, take it to the lab and look at some measurement. So it was more like a quality control process. But what we're seeing in the future is, in many cases, the world of digital trend determines that there needs to be an in-line mission-critical piece of equipment, which has got the highest precision, usually the equipment measurement is 4x the precision of what is measured. It's extremely low noise, so it's a home for very low noise power. So power making the precision better. And of course, the system is much more sophisticated. So something that has come to us from the Maxim acquisition like Trinamic,which is stepper motor control, very, very precise control, together with ADI's precision converter technology and ultralow noise regulators is allowing us to derive a much better result in terms of the in-line instrument that we will have as part of these very sophisticated processes. So overall, our customers are telling us the same circular trends are showing up an instrumentation as well as in industrial automation, which means that our ability to generate value is very high. So this is what's getting our teams really excited. So then just to anchor on a few key takeaways, I wanted to give a sample of one of the very exciting areas that is the Gigafactory. So we can see that it's making a real impact in terms of the world of sustainability. This 2x efficiency is something I am very energized about and so are my team. Secondly, I think in terms of this overall ecosystem, our customers in automation as well as in the whole EV management system, the portfolio that we have, we are going deep now into the application in terms of our domain knowledge, and that's what's deriving this value. I think our deployment -- in many cases, one of these instruments has a couple of hundred different customers applying that instrument. So it's our knowledge of the application, making it easy to use, easy to adopt that we think will make the difference. And I think in terms of this picture, of course, what we're seeing is it's an accelerator of growth. So that step up what would have been mid-single digits going to mid-single digits. This is one of the areas that's even going a bit faster than that and is part of this acceleration.

Great. That was a great overview. Do you have more on the presentation?

No, I think that's pretty much the overall picture. I think it's an example of many more cases that we're going to see. Our customers are telling us about this new world of IT meeting OT. This is one of the great examples. It's new factory builds, but we're seeing similar acceleration in terms of upgrading old factories to make more sustainable outcomes.

Yes. And I think one of the things that came out quite clearly in the presentation and the Gigafactory opportunity is that -- and we're going to focus a lot on automation in our Q&A, but it does spend multiple of your segments, right, within your industrial business, right, the in-line test and measurement, right? Instrumentation and test franchise, right, which is a very big part of the Industrial. Automation, another very big part of an Industrial.

Exactly. So these are the secular trends that we're seeing really driving all of those businesses. So my responsibility is industrial automation, including instrumentation as a separate [indiscernible] and of course, power. So we're seeing -- this is why this was such a good example. We're seeing those 3 come together in a very special way to give a better outcome for the industry.

Okay. We'll now dive into the Q&A. I have several questions lined up for you, and that was just a great presentation. Back at your Analyst Day in April of last year, you talked about -- the team talked about factory automation revenue at about $1.4 billion of annualized run rate, about 25% of your Industrial business at that time. Can you just give us an update snapshot of the automation business today? What percentage of industrial revenues does it account for? And with the new opportunities like Gigafactories, how do you expect your overall automation business to grow over, let's say, the next sort of 3 to 5 years?

Yes. So I think you pretty much gave some of the context of this. It is about -- I think, as of the last quarter, it's $1.5 billion. So it is about 1/4 of the overall Industrial business. As you can imagine this business would have been historically slower growth, now we're seeing late single digits in terms of this growth picture. If you look at the -- the Gigafactory goes across multiple different businesses, right? But if you look at the opportunity in terms of automation, we do believe that automation is now in for a more defined multiyear deployment. Of course, you're always going to get the situation where there is a correction of inventory of a very, very high year, a couple of years that we've come from. But we're seeing -- and customers are telling us about this longer-term deployment for automation. The content is a very big positive one for us. So we would see that, that grows at or above the picture we're guiding. And of course, Gigafactory in terms of that piece of the business will grow faster. That's more like significant double digits. So we're seeing this as an area that we learn a lot from. We can get very focused on the application in terms of deployment.

You are the leader of the overall Industrial business for ADI. And does this change the team's long-term target of driving mid- to high single-digit growth in the Industrial segment, that was sort of laid out at the last Analyst Day?

I think there are pieces of the business that grow faster, and that's why we wanted to highlight this one. Longer term, I think it makes us very confident about that mid-single digit number, right? So we would see that -- obviously, this is a stellar business for the company in it's quality. The problems that we're solving are becoming more challenging, and that's a great home for our innovation. So we're seeing the domain expertise to be a positive momentum for us. So I would say it makes a bit more confidence on the increased growth. And I would say that there are areas that we're getting very, very confident and very strong form like I've just described.

Back at the Analyst Day, again, referring to the April 2022 event. Back then, you sized your SAM opportunity in automation at about $6 billion by 2027. Here, you talked about the incremental SAM opportunity of $1.5 billion from Gigafactories by 2030? So given the new opportunities driven by the focus on Gigafactories, how do you now size your overall automation SAM opportunity? And what percentage of that will be driven by the build-out of these Gigafactories?

Yes. So I think on the charts that I showed [ sort of ] digital factory. I think we talked about $20 billion, which is versus today, it's about twice to SAM opportunity. So it's just honing in on an area that we very much directly see increased content. And of course, that will affect Industrial Automation business. I think it roughly be the same percentage, that will be about 25% overall. But I think what we're seeing is taking this one element. It's about who wants $2 billion of that $20 billion in terms of Gigafactories. But it's one of a number of elements, and I could have picked, for example, the build-out of semiconductor. I'd have to go into a slightly different version there. But I think the story is quite consistently -- so I think we are seeing this expansion of our opportunity to be about 2x, very consistent with what we're seeing the expansion of semiconductor overall. But of course, our certainty in being able to capture more of the opportunity is getting stronger.

And as I mentioned before, I mean, the onset of Gigafactories also drives demand for your electronic test and measurement and what you guys call your ETM segment, which is a part of your industrial subsegment within instrumentation and test. And overall, as I talked about for instrumentation and test is roughly another 25% of your overall industrial franchise. Here, the team, as you talked about, has developed some test solutions for battery formation which is obviously a key part of these Gigafactories. Can you give us a rough idea of the SAM opportunity as it relates to battery formation in-line testing? How big of a business is that today? Obviously, it feels like it's going to be a much bigger part of the franchise a few years out.

Yes. I think if you look at Gigafactories, I showed 3 examples of that of which battery formation was one of them. There are 9 different major process steps in a Gigafactory. So each of them have different particulars, right, that have opportunity. If you look at the opportunity in terms of formation and test, it's about 1/10 of the overall opportunity. So think about it as maybe $150 million to $200 million when you think about that picture in 2030. Of course, it has a variety of different requirements of technology. It is a really great problem to solve because the property of the battery information stays with it through the life of the battery. So it has impact on our automotive business in terms of being able to look at that over its whole lifetime. So we're seeing a mix of solutions from our BMS plus highest precision measurement to be part of making that formation 20 hours time shorter. We're still working on this. We have a strong position, both in the formation and in the battery use, and the life cycle of the battery is a very big area for us to consider. So it's an exciting problem to solve, and it's one of a number that are part of the process steps in the formation of battery in the Gigafactory production.

Many of the large auto OEMs themselves are setting up their own Gigafactories. And these same auto OEMs are using your automotive solutions, right, with their electric vehicles and just their overall vehicle portfolios, right? Like your automotive BMS solutions, you're in-cabin connectivity solutions, your ADAS solutions, all areas where the automotive franchise has a very strong leadership position. Does the familiarity and relationship with the team on the auto side give you an advantage, give you at a seat at the table when you start to engage with these same customers on Gigafactories?

Yes. Absolutely, it does. When you see the picture of some of the automotive customers have very much got their own special sauce that they want to deploy. We find that they're working with our big industrial customers in a lot of cases. And in a way, we're part of both. So we're bringing the 2 together. It's not just one solution across all of the industries. Lots of those customers have their own particular decisions. We are seeing both our battery management systems that are deployed in the automotive car itself being used in formation as well as some of our very highest precision measurement frame. So it's important that we can bring all of those parties together. And we're being invited to do that because we've got this kind of insight. We've been working with the industrial customers for our whole lifetime. And in many cases, EV is new. So it's bringing together of both. But generally, we're getting right to the customer's customer being able to do this. And that's where the insight and the application is coming from. So we have very disruptive technology on the life cycle of the battery. That goes right back to the formation and to the use of the battery.

As you move -- as the industry moves towards Gigafactories, digitization of factories, driving demand for your automation solutions. These will require more sensing, edge processing, connectivity, robotics, as you described. In your product portfolio, you have a mixture of digital processing and control analog mixed signal, power, connectivity products. Help us understand the mix of these products within your automation or maybe even just within your Industrial business, right? In other words, within your total automation revenues or digital factory revenues, what percent is analog? What percent is digital control and processing? What percentage is power and so on?

Yes. Well, as you can imagine, fundamentally, these are edge-based problems, right? These are -- I know we talk about the network and the switching enables this really great intelligent edge. Fundamentally, most of it is a measurement problem, which is about 2/3 analog, about 1/3 power. I would say that the need for flexibility is driving the need for some embedded processing. So -- also security is a big feature. So we are needing to make these secure with very localized insights that are being derived. Anytime we get a control system, latency is very important. It's about 2/3 analog, I would say 1/3 power generally. But we are seeing the need to make the analog more intelligent. So that means we're embedding. I'll give you one example. The highest speed of capture, which is used for something like scanning electron microscope, which might be used here, has our latest generation of very high-speed technology. So it's not only precision. The fact that we can do that means that we can now accelerate the localized processing with an embedded digital. And our power solution is about even though that's a very high value to get, you can imagine the highest speed processing has very high value. The power to be able to drive efficiency in that is also very high value. So it's about 1/3 of the value. So we're seeing -- we've got already very high share on analog processing, and it's a good opportunity now for us to increase share with this low noise, low EMI power processing and embed digital, but digital that really makes a difference, right? So it could be -- the digital solution could be deriving security or it could be driving some localized insights. So that's what effectively makes the difference in the application, being able to combine all those in the application. The algorithm is often very, very valuable.

And that's a good segue into my next question because as you guys laid out last year, you've been moving up the stack, right, with embedded digital software solution stacks to drive higher content, deliver more complete turnkey solutions. What percentage of your sales tied to more system solution sales, reference design solutions and how much software do your products encompass?

That's a very active debate within the company in terms of where we're going. And I know we've messaged this world of intelligent edge quite a bit, but it's very real. Now one way to think about it is, in many cases, the solutions need component technologies. So we have to lead on the core technology side. And by far and large, I think my business has lots and lots of the [indiscernible]. Some of those are 20 years old, half of them are more than 10 years old. But what you get in these applications is, I'll give you an example, something that enables time-sensitive networking at gigabit type speed. That's basically a transmission transceiver device. The value of that device, we add -- the same again in terms of components around it. So this anchor plus attach is a big part of what we're seeing. What that does is it renews design-ins of products that might even be 15, 20 years old. So the world of the solution needs a lot of components. We are going to market by delivering the impact in terms of the end solution. And the fact that we've got these anchor investments on these newer areas, as well as the solution is really what's driving. So I think I could show examples in many, many different cases of these application-based products that we're doing with some flexibility but driving a lot of it. So I don't think that the component business is going to reduce any time soon. In fact, it's getting a little bit of a higher momentum. But we're seeing these application-based systems, even though they might be [indiscernible] components, it's effectively recovenant innovation in many cases, we're seeing them to be a bigger part of what we do and grow significantly faster.

As a team, as you pointed out in your presentation, there are more than 190 new Gigafactories plan worldwide, driving roughly 10 factories per year of $45 billion of annual CapEx spend by 2030. Given your portfolio breadth focused on Gigafactory, how should we think about your overall market share? And how do you think about the share mix within the different geographic footprints of your customers in Gigafactory?

Well, as you can see from the picture, right, there was -- there's deployments that are in U.S., Europe and Asia. Our sales are pretty much agnostic to whether it's U.S., Europe or Asia. We concentrate on where the design is completed. So we're very active in every region. I don't really see that changing so much. I would say, in terms of share, you can imagine as we solve more of the problem, we're getting more of what we have designed in every case. We're very committed to going deep into using our technology to really make the impact. I gave some examples. I'll give you some examples and something like the stepper motor where it would have been components that we would have deployed in a stand-alone case. Now the fact that we can get a significant reduction in energy from the Trinamic motor system means that our attach rate is much higher. So we feel that this kind of insight is what's driving progression of share. In precision, we already have very strong share. I think when you look at power, we're able to bring power with these solutions more. And of course, we've got the deployment of other embedded processing locally that also [ is driving ]. So overall, I think we feel confident as we go to these end impact solutions, we feel like it's an opportunity.

Let's talk about your acquisition synergy strategy, right? Specifically post the Maxim acquisition in 2021, the team laid out a revenue synergies target with the Maxim product portfolio driving $1 billion over the next 5 years. Maxim also has some leadership in areas of automation. You pointed out some of the high-speed digital programmable logic controllers or what we call PLCs, power management, low-power MCUs. As you think about automation the digitization of the factories, Gigafactory opportunity. Help us understand where you're exploiting the synergies with the Maxim portfolio? And can you maybe even quantify within the $1 billion synergy target, how much of that is coming from synergies within your automation/digitalization of the factory sort of portfolio?

Yes. So I think it's a very topical discussion that we have in terms of each of our customers. When you look at this world of IT meeting OT, so information technology being up. Anytime you connect to the network, you have to have security. We have -- thankfully, we've got a processor portfolio of the Maxim acquisition that brings with it some security. If you look at our analog functions, there really would be very strong but needing security. So that's an example in terms of the connected factory. Europe is now starting to legislate for security. So you cannot have the [ CE ] level is being brought on now for as little as 2 years from now, you'll have to have the security standard operated. Secondly, you can look at the combination of power with very, very high efficiency, plus the need for better process than we would have gotten some advantage of process for Maxim. That drives much higher efficiency in a lot of these solutions that we have. It might be only a couple of percent of efficiency going from 91% to 93%. But if you look at it, 9% loss, it's a part of the loss. So it's a very significant impact. So putting together very, very high performance power with some precision and security for Maxim with some precision conversion from ADI, that's part of how we can drive this big synergy number. And it's very real. We're seeing the ability to gain share, be there because of it, but more of the ability to complete the full applications.

Perfect. Near to midterm, we are in the midst of a down cycle, but your industrial franchise has performed extremely well, right? Over sort of trailing 4 quarters, your business franchise was up 25% year-over-year on a performance based or pro forma based, that's including Maxim. And it looks like the team is on track to sustain sort of a flattish revenue profile in your industrial business this year. Within this profile, help us understand how the factory automation, Gigafactory, digitization of the factory segments of your business has performed? And how are these subsegments expected to perform with some of the near-term normalization of overall demand over the next few quarters?

Yes. So when I think about that, I really think about the secular trends, right? And if you look at a situation where people talk about pulling back in terms of spend in the short term, there's a rebalancing of inventory. So those are going to be [indiscernible]. But what customers tell us is really about the long-term deployments. And some of these -- I talked about sustainability, we talked about the secular trends now going from being recommended to being legislated. So something like a motor system I talked about. Before that was a recommended motor, which is half the motors are 10 years old. That was a system that might be an A1 motor or before that. Now from July of this year, you mandate that it has to be A4 motor, which is about 15% more efficient than the previous quarter. The reason I mentioned this is we've gone from looking at secular trends being recommended to now, in some cases, even been legislated. So I think -- and customers are telling us that this picture of deployment isn't only 1 year. Last year was a great growth year. I think we are looking at some elements of next quarter. We talked about maybe some moderate position. But as you look to the year, it will be a record year. So for Industrial business, this will be a record year. And the next number of years, we are seeing our customers are telling us that those deployments will last between 3 to 5 years. I can't always tell you in the short term of what's going to happen, but I can tell you that this business will perform stronger, I think, than history at the late single digits and probably a bit stronger than that in some cases. We have a very good track now on this 2030 picture of twice the opportunity in terms of SAM. And that's coming from our customers asking us to do more. So the world has gone from one of minor upgrades to one of very significant changes. And that's all driven by the insight of the semiconductor becoming more important to the end use. So I think you see other places that semiconductor content is doubling by 2030. So very much that's the picture we're seeing in Industrial. So I think you'll see this business grow much more at the level that we talked about and segments of this business go faster.

Again, we'll end it on a discussion on -- obviously, the team drives best-in-class profitability profile. Your Industrial business financial profile is accretive to your gross and operating margins. Within this, how does the overall profile of the automation, digitization in factories and all the products that sit underneath that, how do these segments compare relative to the overall industrial growth and operating margin profile?

Yes. So as you can imagine, the Industrial business is at the highest end of the profile, right? It's the highest margin business. The picture of very moderate GDP kind of growth was there 5 years ago when there wasn't that much deployment. But you put that together with our ability to do full solutions, we're very confident that the automation business will be very, very positive in terms of growth going forward and a much stronger position in late single digits compared to what it would have been. And of course, the performance of the business, we see with these higher values being generated, it's solving more difficult problems. The intelligent edge is the future. We're the source of the data, we're kind of where the data is born. So we're seeing that be the spur to the business growth in the next 3 to 5 years. Of course, short term, we've talked about it. But long term, we don't see anything in terms of this picture of opportunity because of these secular trends that look like they're becoming even more of an acceleration.

Yes, absolutely, lots of growth profiles, lots of growth opportunities ahead of the team. Martin, thank you very much for your insights today. Really appreciate it.

Thank you very much.

Thank you.

Thank you.