01—Abstract
Summary
Summary of the 10-K filed November 22, 2017. Cited figures are marked; the original filing is the authoritative source.
Analog Devices, Inc. (ADI) reported strong revenue growth in Fiscal Year 2017, driven significantly by the transformative acquisition of Linear Technology Corporation (Linear) completed in March 2017.
This strategic move expanded ADI's portfolio of high-performance analog, mixed-signal, and digital signal processing technologies, positioning the company for growth in key markets like industrial, automotive, consumer, and communications. The company experienced a substantial revenue increase of 49%a year-over-year, largely attributed to the inclusion of Linear's financials. While gross margins saw a slight decrease due to acquisition accounting adjustments, ADI's operational performance remained robust.
The company also continued its investment in research and development, highlighting a commitment to innovation and future product development. Investors should note the significant debt incurred to finance the Linear acquisition, which increased interest expenses.
However, ADI's strong cash flow from operations and its established market position are expected to support debt servicing and future growth initiatives. The company also demonstrated a commitment to returning capital to shareholders through consistent dividend payments.
02—Key points
Key Highlights
- Revenue increased by 49% to $5.11 billion in FY2017, primarily driven by the acquisition of Linear Technology Corporation.
- The acquisition of Linear Technology Corporation was completed in March 2017 for approximately $15.8 billion, significantly expanding ADI's product portfolio and market reach.
- Industrial sector remains the largest end market, accounting for 46% of revenue, followed by Consumer (21%), Communications (18%), and Automotive (15%).
- Research and Development expenses increased by 48% to $968.6 million, reflecting a continued investment in innovation.
- Gross margin decreased to 59.9% in FY2017 from 65.1% in FY2016, mainly due to acquisition accounting adjustments, including the sale of acquired inventory at fair value.
- The company temporarily suspended its share repurchase program following the acquisition of Linear but maintained its dividend payments.
- Debt increased significantly to $7.9 billion due to financing the Linear acquisition, leading to higher interest expenses.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Analog Devices kept $0.15.
- Revenue$5.25B100.0%
- Cost of revenue−$2.08B39.6%
- Gross profit$3.17B60.4%
- Operating costs−$2.01B38.2%
- Operating income$1.16B22.2%
- Interest, other & tax−$357.4M6.8%
- Net income$805.4M15.4%
Where FY2017 revenue went
$5.25B- Cost of revenue: $2.08B, 40% of revenue
- R&D: $968.1M, 18% of revenue
- Net income: $805.4M, 15% of revenue
- SG&A: $690.5M, 13% of revenue
- Other operating costs: $346.8M, 6.6% of revenue
- Interest, other & tax: $357.4M, 6.8% of revenue
Kept 15% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed November 22, 2017Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $5.25B$3.42B | +53.3% |
| Cost of Revenue | $2.08B$1.19B | +74.0% |
| Gross Profit | $3.17B$2.23B | +42.3% |
| R&D Expenses | $968.13M$653.82M | +48.1% |
| SG&A Expenses | $690.53M$461.44M | +49.6% |
| Operating Expenses | $2.01B$1.20B | +67.3% |
| Operating Income | $1.16B$1.03B | +13.1% |
| Interest Expense | $250.84M$88.76M | +182.6% |
| Net Income | $805.38M$861.66M | −6.5% |
| EPS (Basic) | $2.32$2.79 | −16.8% |
| EPS (Diluted) | $2.29$2.76 | −17.0% |
| Shares Outstanding (Basic) | 346.37M308.74M | +12.2% |
| Shares Outstanding (Diluted) | 350.48M312.31M | +12.2% |
05—Questions
Frequently Asked Questions
What was the impact of the Linear Technology acquisition on Analog Devices' financial performance in FY2017?
The acquisition of Linear Technology Corporation, completed in March 2017 for approximately $15.8 billion, was the primary driver of revenue growth in FY2017. Revenue increased by 49% to $5.11 billion, with Linear contributing $913.2 million. However, the acquisition also resulted in increased debt, higher interest expenses, and acquisition-related accounting adjustments that impacted gross margins and R&D expenses.
How did Analog Devices' gross margin perform in FY2017, and what were the contributing factors?
Analog Devices' gross margin percentage decreased to 59.9% in FY2017 from 65.1% in FY2016. This decline was primarily attributed to acquisition accounting adjustments related to the Linear acquisition, including $358.7 million for the sale of acquired inventory written up to fair value, $83.0 million for amortization of acquired developed technology, and $22.9 million for depreciation related to the write-up of fixed assets. These factors offset favorable factory variances from increased manufacturing utilization.
What is Analog Devices' strategy for research and development (R&D)?
Analog Devices views R&D as critical to its future growth and maintains a substantial investment in this area. In FY2017, R&D expenses increased by 48% to $968.6 million. The company's strategy focuses on building technical leadership across its core technology platforms, including converters, amplifiers, RF and microwave, power management, MEMS, and DSP. These investments aim to develop innovative new products and enhance existing ones to maintain product leadership and meet evolving customer needs in key markets.
How has the company's debt structure changed, and what is its impact?
The acquisition of Linear Technology was largely financed through debt, causing the company's total debt to increase significantly to $7.9 billion by the end of FY2017. This substantial increase in debt led to a corresponding rise in interest expense, which more than doubled from $88.8 million in FY2016 to $250.8 million in FY2017. While this debt load is significant, the company believes its operating cash flow and existing credit facilities are sufficient to meet its obligations.
06—Continue