ADI targets three major opportunities in the future of semiconductors and builds an efficient ecosystem

ADI recently released its new quarterly financial report. According to the company, ADI's first quarter performance was strong, with revenue growth of 20%, close to the historical high, operating profit margin also reached 40.7%, consistent with our long-term model, and adjusted EPS growth of 40%. ADI pointed out that the company achieved year-on-year growth in all market segments this quarter. This is the first time in three years. B2B revenue increased by 2% month-on-month and 22% year-on-year, while each terminal market achieved double-digit growth.

Looking at the different businesses, the Industrial business accounted for 55% of revenue this quarter, up 5% from the previous quarter and up 24% from the same period last year. This was a record quarter for the Industrial sector, which is broad-based in terms of applications, customers and regions. Specifically, demand for the Automation Instrumentation and Energy businesses increased this quarter.

The communications business, which accounted for 18% of revenue this quarter, fell 10% quarter-on-quarter but grew 16% year-on-year. Although Huawei's revenue was zero this quarter, both wireless and wired revenues achieved double-digit growth.

Coming to the recently popular automotive sector, it contributed 16% of the company's revenue, an increase of 7% from the previous quarter and 19% from the same period last year. As the industry actively increases production, we have seen double-digit year-on-year growth in all applications.

BMS exhibited the highest growth rate, and we expect this trend to continue given the growing design pipeline.

Finally, our Consumer Electronics business, which represents 11% of revenue, grew 2% sequentially and 5% year-over-year. We saw strong growth in hearables, wearables, and home entertainment. The inflection point this quarter puts us on track to return to full-year growth in 2021.

Now, for the rest of the P&L, gross margin for the seasonally weak first quarter was flat sequentially at 78%. ADI expects first quarter gross margin to be the trough for the year.

ADI focuses on three opportunities

At the earnings conference, ADI CEO highlighted four major opportunities they are optimistic about. He said that ADI's industry-leading product portfolio defines performance advantages with its wide range of functions and inherently brings sustainable benefits. By designing each generation of chips, ADI enhances the performance of customer systems while improving efficiency. The product portfolio supports customers of all sizes and adapts to major long-term trends across industries.

As such, he highlighted where ADI is headed in the areas of automation, electrification, and connectivity.

First, automation of humanized daily tasks, factory floors and supply chains is essential for our future, and the pandemic has further accelerated this paradigm. The World Economic Forum predicts that by 2025, more than half of tasks will be performed by machines first. To support this trend, our industrial customer base is promoting the deployment of robots and cobots.

Over the next five years, global robot installations are expected to increase by about 60%. Currently, industrial motors consume 25% of the world's electricity. We urgently need to deploy motor technologies that can provide speed and accuracy, safety and flexibility, while also being energy-efficient. Now, let me share some examples of how our technology can address these challenges in automation.

So, first of all, variable speed drives can reduce motor energy consumption in robots by up to 40%. Together, ADI’s precision signal chain isolation and power management technologies increase response time and improve power conversion.

Second , ADI's time-of-flight sensing technology enables robots to sense and interpret the world around them . As a result, our customers can deploy more robots per square foot and improve worker safety.

Third, ADI’s OtoSense condition-based monitoring solution can proactively identify motor inefficiencies, enabling customers to proactively optimize and repair machinery . This avoids costly downtime and reduces energy consumption by 10%.

Importantly, these technologies for improving motor efficiency and robot control could save nearly one gigatonne of annual CO2 emissions, the equivalent of 330 million homes.

Overall, automation is a key component of ADI's Industrial business, supporting thousands of customers. We expect accelerated digitalization to drive continued growth in 2021 and beyond.

Now, I will turn to electrification and discuss the important role ADI plays in the accelerating consumer demand for greener transportation.

The World Economic Forum predicts that the number of electric vehicles will grow from 7 million today to approximately 215 million by 2030. From supporting EV infrastructure to forming and managing vehicle batteries, ADI’s solutions are embedded in all stages of the EV journey.

Therefore, I will now share how our technology impacts this ecosystem.

First, the shift to renewable energy brings huge environmental benefits. But it also creates new obstacles to distribution, transmission, and stability. This requires a smart grid that can vividly monitor and adjust performance. ADI's control and sensing technology is essential to ensure that grid parameters remain stable and prevent downtime. This shift also requires energy storage systems to alleviate intermittent problems related to variable user demand. Here, ADI's high-precision monitoring and efficient power conversion technology help extend system battery life by more than 30%.

Turning to the battery, the most expensive vehicle component, ADI’s battery management system, or BMS, enables up to 20% more mileage per charge compared to competitors. As a market leader, more than half of today’s top ten electric vehicle brands use ADI’s BMS technology.

Additionally, last fall, ADI introduced the industry’s first wireless BMS platform. This is all the benefits of our wired solutions, they reduce vehicle weight and enable scalable battery architectures, paving the way for reuse and storage systems.

GM's Ultium platform uses our wireless BMS technology and expects to deploy it in 30 different models by 2025. Interest in our wireless BMS technology is rising, and last quarter we received our second OEM design win. Importantly, the environmental impact of our BMS capabilities is clear. In 2020 alone, vehicles equipped with ADI's BMS technology will prevent approximately 70 million tons of CO2 from entering the atmosphere.

Our solutions used in the cell formation phase enable higher current density, thus reducing customers’ equipment footprint by up to four times and reducing cost per channel by nearly half. Our technology makes it possible for plants to recover more than 80% of the energy used in the formation process back to the grid. Based on today’s production levels, energy recovery during formation could reduce CO2 emissions by approximately 1 million tons per year.

In summary, electrification not only represents a high-value market with long-term revenue growth opportunities. However, it is essential for protecting our precious natural ecosystems.

Finally, let me talk about connectivity.

Connectivity has been fundamental to sustaining and driving our societies and economies in the face of the pandemic, and the communications market has historically been renowned for its sustainability benefits. This ability to stay connected and productive anytime, anywhere also has a positive impact on the environment, as evidenced by a record 7% reduction in global carbon emissions in 2020.

Mobile traffic is forecast to grow approximately 17 times by 2030. The exponential growth of wireless data combined with ubiquitous cloud computing is causing IP traffic to double every two and a half years. ADI plays a key role in building the next generation infrastructure to support the exponential growth of data. From capturing signals at the base station air interface to transmitting information to the data center, while greatly reducing power consumption.

As a result, ADI has invested early and reshaped the 5G radio architecture, and our software-defined transceivers with complementary precision signal chain and power technologies are critical to enabling 5G large-scale manual architectures.

When comparing 5G to 4G, our solutions help reduce the energy per bit on the air interface by 90% by reducing the number of channels by a factor of 10 while maintaining radio size and terminal performance.

As data generation grows exponentially, our customers are upgrading their optical infrastructure from 100 to 400 gigabits per second. Our precision signal chain technology helps these optical modules maintain constant power while operating at four times the data rate. As customers look to increase to 1 terabyte and beyond, opportunities for ADI will continue to expand.

Capturing and transmitting data efficiently is important. But computing in data centers is a major source of energy consumption in the connected ecosystem.

Currently, data centers generate more than 130 million tons of CO2 per year worldwide. Therefore, the transition from 12V to 48V power distribution can reduce power consumption and increase computing density. Our 48V-to-core micromodule power supply and power system monitoring solutions are enabling this transition, and according to Alphabet, this approach and approved data center energy efficiency is 30%.

In summary, ADI is part of an ecosystem that drives efficiency, wireless and wired data capture transmission, and of course compute, and our customers' solutions scale investments and cost-effectively build next-generation networks. So, taking a step back, I'm incredibly proud of the progress we've made in fulfilling our excellent engineering mission, but there's still a lot of work to do.

ADI is committed to collaborating with customers to develop increasingly innovative technologies that create successful business outcomes in the lives of enriched people and greater impact on our world.