Analog Devices, Inc.

Q4 2021 Earnings Conference Call

11/23/2021

spk_0: good morning and welcome to the analog devices fourth quarter and fiscal year twenty twenty one earnings conference call which is being audio webcast via telephone and over the web i like to now introduce your hosts for today's call mister michael the corelli vice president of investor relations sir the floors yours
spk_1: that is w a good morning everybody they for join our fourth quarter of fiscal point one or more conference call with a call today or a the i feel that arose navy i see if overshot mademoiselle but it was missed release you could buy it and leave and scheduled an investor dialogue dot com the art of his closures information about to discuss include for looking statements which are subject to certain risks and uncertainties as been describe her or his release eighty i'd and math and pure reports and other mature have followed se si average result could differ materially from the for looking for mission as these demons reflect our flirtations only other data this call the other technologies and up at his name is accepted required by law a common to they will also include on get financial matters which excludes special items with comparing our results to his daughter performance special items are also excluded from prior periods reconciliations how did not get measures to the most directly comparable got measures and additional information about on a non non got measures are included in today's earnings release please no republic the table at our investor web page up historical pro forma combine and marker revenue aligned to a like fiscal quarters at part of exercise we also met map subsectors mad a guy's groupings as a result of this reclassification but one hundred fifty million dollars in annual revenue move from industrial and three occasions to consumer for the maxim and business and the alternate over to a eighty i feel visit roast fish thank you very much my kinda very good morning to world but once again we delivered record revenue and profit center fourth quarter closing out what was a milestone year for eighty eight a success was driven by are in the two leading high performance portfolio and our teams strong operational execution
spk_2: enabling us to better meet insatiable demand for a products that stepping back a little twenty twenty one truly demonstrated the vital importance of semiconductors to the modern digital age
spk_1: we invested ahead of this inflection building a comprehensive portfolio to better solve our customers most complex problems in this ubiquitous lee sensed and connected world as we enter twenty twenty two or backlog and bookings remains a boast and we continue to invest in manufacturing capacity positioning as well for another successful year ahead
spk_2: i'm moving on to our results a fourth quarter revenue was two point three four billion dollars and dps was a dollar seventy three both exceeding the midpoint of guidance and for twenty twenty one our revenue was seven point three two billion and dps with six point four six looking at are gonna get i we deliver new high watermarks on revenue profits
spk_1: industrial and automotive achieved record revenue this year
spk_2: well consumer a turned to annual growth for the first time since two thousand and seventeen and communications revenue the claimed continued strength in wired is offset by weakness in wireless related to the china market in twenty twenty one we generated a record two point four billion dollars a free cash flow equating to a free cash flow margin of approximately thirty three percent this maintains our position in the top ten percent of the snp five hundred in line with a revised couple occasions strategy to return a hundred percent of free cash flow we returned three point seven billion to shareholders and twenty twenty one through dividends and share buybacks it was not only a record year for performance and shareholder returns but also for investments that position of to better capture market opportunities presented by secular growth drivers in our business first we took decisive action to add capacity throughout the year with more than three hundred and forty million dollars in capital expenditures this is enabling us to better navigate the near term supply demand balance while achieving our long term growth objectives and then twenty twenty two were planning to expand our internal amount a factory capacity at our factories in the us and europe these additional investments will create more profitable flexible and resilience manufacturing capabilities of eighty i not our core were an innovation driven enterprise and together with maxim we will invest more than one point six billion dollars and or in the annually
spk_3: to ensure we continue developing solutions that defined the edge of possible
spk_2: as you know to compliment organic efforts we selectively use em a day to expand both are scale and our scope
spk_3: in two thousand and seventeen the acquisition of ltc reflected the strategy
spk_2: since acquiring the franchise we delivered on our goal to double it's historical growth rate equally impressive was our ability to improve on linear is in history leading gross margins
spk_3: more recently we completed the acquisition of next them integrated
spk_2: similar to previous acquisitions we're combining the best from eighty i'd maxim to develop a new operating system that enhances customer engagement and drives long term profitable growth and a very pleased with the progress that we've made already on the customer engagement side the integration of a few things has brought a tremendous degree the excitement the team is already beginning to identify cross selling opportunities and building out or opportunity pipeline from an engineering at operations perspective our teams are coming together at a remarkable speed and were aligning product and technology roadmaps to help accelerate growth in the years ahead this combination also strengthens the diversity of our portfolio and enriches are resilient business model to that end we now have approximately seventy five thousand products cues and eighty percent of these products individually account for less than point one percent of our total revenue and the addition of max and provides us with a more comprehensive power portfolio maxims primarily application focus power offerings are highly complimentary with area is more general purpose or catalogue power portfolio this adds new sam and all or markets and enhances cross selling opportunities accelerating revenue growth in our two billion dollar plus power portfolio
spk_4: given these investments
spk_2: we enter twenty twenty two with an unparalleled portfolio of technology and talent aimed at capitalizing on the secular girlfriends across our markets a nod like to share a few examples of how a business is at the heart of these emerging trends
spk_3: starting with industrial
spk_2: twenty twenty one with a better year for for are highly diversified unprofitable industrial business with all applications achieving all time highs our unrivaled high performance portfolio continues to benefit from the mass digitalization movement across industries our largest industrial segments instrumentation and test is comprised of automated test equipment electronic test the measurement and scientific instruments these applications most combat increasing test times as system complexity and metrology requirements rise exponentially for example protesters and memory and data centers are leveraging finer know geometries with higher levels of integration which can double the test time this challenge is our opportunity are innovative purpose built solutions a breed test and back to piracy while increasing our content by more than fifty percent factory automation is one of our largest industrial segments i believe or the tipping point in the industry four point zero as customers are looking to add sensing as processing and connectivity to make their supply chains more robust efficient and of course flexible idiots precision signal chain of power franchise who's sensing technologies and robust wired and wireless connectivity are critical to enabling these efforts looking ahead with an enormous opportunity to connect maxims rich power portfolio which is under represented in the industrial sector today
spk_3: with eighty i strong position
spk_2: shifting not automotive it a year dominated by chip shortage headlines we achieved record revenue as consumers and manufacturers are embracing electric vehicles and an enhanced in vehicle experience these two areas need additional semiconductor content and allied very well with the strength of both eddie i and maxim
spk_5: in electric vehicles
spk_2: our market leading wired and wireless battery management systems are vms offer customers the highest levels of accuracy reliability and safety as well as flexibility to scale across all battery chemistries including the more environmentally friendly zero cobalt lf p be a mess position is further strengthened with maxim we know sell to seven of the top ten hp manufacturers' and are increased technology and products scale enables us to address new said our efficiency is also critical in electric vehicles to better optimized performance and range here maxim strong and growing power management capabilities compliment our portfolio unsigned the vehicle automakers are enhancing the in cabin experience eddie eyes market leading audio systems with signal processing a to be connectivity and active road noise cancellation continues to gain traction and twenty twenty one are a to be franchise was designed and at five major or yemen's and since it's launch in two thousand sixteen we've shipped over fifty million eight to be nodes and we expected to double within the next three years with maxim are in cabin connectivity offerings expand to include their industry leading gm gms cell franchise which is critical
spk_3: an architect of detecting advanced driver assistance systems
spk_6: turning to communications
spk_2: twenty twenty one was an uneven year a strengthen wired was offset by weakness in the china wireless market encouragingly as we looked at twenty twenty two the proliferation of five g is gaining momentum globally especially in north america and the wireless market area the leader with more than double the market share of our closest competitor this year we introduce the industry's first software defined radio transceiver that includes a fully integrated digital front end this next generation transceiver platform and able to to defend and extend opposition in traditional five g and emerging or and networks additionally maxims power portfolio will support our goal to increase or pirates hutch race in the wireless market
spk_7: in are wired business
spk_2: we grew again this year as data centers and networking became increasingly vital to accelerating digitalization maxim more than doubles our exposure to data centers and as new growth vectors with it's power management solutions for cloud processors and accelerators and momentum as building with a strong pipeline across traditional customers as well as hyper skaters
spk_3: finally moving on to consumer
spk_2: our business deliver double digit growth this year as we executed on our strategy to diversify our customers products and applications maxim further bills and these efforts bringing additional power audio and sensing capabilities and adding new applications like fast charging and gaming given the strong pipeline and design wins for a signal processing solutions
spk_3: a crop hear those were those and professional audio video combined with our car management capabilities i'm confident that run the path for continue
spk_2: not like to focus on s just a little which is now an integral part of a business strategy broadly speaking i believe semiconductors can play a major role in improving our standard of living while also protecting our planetary help for example eighty eyes technology is critical to optimizing global energy efficiency from ease and charging stations two sustainable energy and smart grids we're not only investing of these applications but they represent a meaningful and growing portion of area eyes revenue today
spk_3: so we've made substantial progress on our he has to initiatives and twenty twenty one including a commitment to increase the use of sustainable energy for one hundred percent of our ganache area manufacturing activities by twenty twenty five up from fifty percent today
spk_2: action like these will help us achieve our goal of carbon neutrality by twenty thirty and net zero emissions by twenty fifty we launched the ocean and climate innovation accelerator consortium focused on the critical role of oceans and combating climate change and with enhanced hamster disclosure and transparency and he has two topics especially around diversity equity and inclusion in the year ahead we look to extend our he has to initiatives across the combined company and of course make further progress toward our goals don't closing i'd like to thank our employees and partners who worked tirelessly throughout this past year helping eighty i achieve these historic results
spk_3: we're off to a strong start and twenty twenty two with continued robust demand and line of sight to capacity additions and i've never been more optimistic but areas future
spk_2: our industry leading position is stronger with maxim as we expand our capabilities to capitalize on emerging secular drivers positioning us for faster growth in the years ahead and with that i'll hand you over to prussia
spk_8: thank you vents let me add my welcome to our year and earnings call except for revenue my comment on the piano and our outlook will be on a non gap or adjust to basis which excludes special items outlined in today's press release also the acquisition of max him closed on august twenty sixth as such i will discuss result inclusive of maxims contributions for approximately nine and a half weeks i'll begin with a brief review of twenty twenty one
spk_1: we delivered sequential revenue growth every quarter leading to a new all time high of seven point three two billion
spk_8: gross margins of seventy point nine percent increased a hundred and a basis points due to favorable product mix stronger utilization and the savings from a legacy ltc plant optimization
spk_1: operating margins a forty two point four percent increased two hundred and fifty basis points reflecting gross margin fall through and disciplined discretionary spending all told adjusted mps increased more than thirty percent to a record six dollars and forty six at turning to the fourth quarter revenue of two point three four billion exceeded the midpoint of are updated guidance
spk_2: maximum contribution to revenue was five hundred and fifty nine million
spk_1: looking at the and market results and to get a better view into the underlying trout trends are focus my remarks on organic eighty i results but this will be the last earnings call will we provide eighty i organic commentary industrial represented fifty seven percent of revenue and increased slightly sequentially and twenty five percent year over year with growth across every subsequent for the full year industrial increased twenty eight percent this strong performance once again it's a testament to our sustained relative outperformance in the industrial market communications represented sixteen percent of revenue and was flat sequentially while decreasing your rear for the year we delivered record wired sales while total comes declined due to the weakness in china wireless largely related to geopolitical tensions excluding this region total comes and grew more than twenty percent in twenty twenty one and overall or comes geographic mix shifted with north america europe and korea now representing our largest sources of revenue automotive represented fifteen percent of revenue and was down nine percent sequentially as the third quarter included revenue from an ip licensing agreement
spk_8: excluding this auto was flat sequentially and a year over year basis auto increased fifteen percent would be a mess more than doubling reflecting our leadership position in the electrification ecosystem
spk_1: for the year auto exhibited robust broad based growth finishing up thirty six percent consumer represented twelve percent of revenue and increased more than twenty percent sequentially and year over year marking the fourth consecutive quarter of annual growth over a year ago we said consumer would grow in twenty twenty one and the team deliberate on this commitment with consumer increasing twelve percent for the year moving on to the rest of the fourth quarter out on the to speak to the results inclusive of the partial quarter of maxim gross margins where seventy point nine percent up ninety bepgs your rear operating margins finished at forty three point one percent up one hundred and forty basis points year over year not op expense was forty four million and the tax rate was twelve point seven percent
spk_8: all when adjusted mps was a dollar seventy three above the midpoint of guide and up more than twenty percent your rear
spk_1: if we look the balance sheet we ended the quarter with approximately two billion dollars of cash and equivalent and are and twelve month pro forma basis are net leverage ratio was one point one turns
spk_8: building on our ears t efforts we continue to strategically leverage sustainable financing we're proud to be the first us tech company to deploy three sustainable finance instruments
spk_1: with our inaugural green bond issuance a sustainability linked revolving credit facility and a sustainability linked to bond offering specifically this bond offering was part of our four billion dollar refinancing efforts during the quarter and as a result we lowered are weighted average coupon to two point seven percent while extending the average duration of our total debt by nearly ten years inventory dollars increased slightly sequentially after adjusting for the partial quarter of maxim activity and the fair value step up and inventory related to the acquisition
spk_8: while inventory days were down slightly
spk_1: channel inventory declined and remains below the low end of our seventy eight week target
spk_8: wouldn't the cash flow statement
spk_1: for the year cash flow from operation and increased thirty six percent to more than two point seven billion we generated in record free cash flow of two point four billion or approximately thirty three percent of revenue despite cap x more than doubling to three hundred forty four million or four point seven percent of revenue we also returned a record three point seven billion or more than one hundred and fifty percent a free cash flow to shareholders if you buy it if it ends and buybacks including eighty percent of our two point five billion a us our program as a reminder we plan to return one hundred percent free cash flow to shareholders which is accomplished by growing our dividend annually with a forty to sixty percent dividend payouts target and by using residual cash flow or buybacks we entered twenty twenty two as a much larger enterprise with an attractive long term outlook as vince mentioned the plan to increase our capacity investments to support revenue growth and reinforce the resiliency and efficiency of our hybrid manufacturing model as such we anticipate cap packs being six to eight percent of revenue for twenty twenty two above our long term model of four percent
spk_2: this step up in topics will not impact the commitment we made in september to buy back five billion of shares by the end of calendar twenty two
spk_1: so now onto the fourth quarter outlook revenue is expected to be two point six billion plus or minus one hundred million
spk_8: based on the midpoint we expect operating margin to be forty three point three plus or minus seventy beeps we expect not up expenses of approximately fifty million a twelve and a half percent tax rate and share count of approximately five hundred and thirty million
spk_1: based on these input adjusted fps is expected to be adopt or seventy eight plus or minus ten cents
spk_8: for additional context using the fourth quarter pro forma combined revenue as a base our guide at the midpoint implies low single digit growth quarter on quarter for in que one for what is normally a seasonally we could quarter this growth is driven by an increase in be
spk_1: be quarter over quarter while consumer is down sequentially so before closing i want to give a brief update on our maxim integration progress phase one of shareholder value creation is well underway building conviction in our costs synergy timeline we anticipate realizing over forty percent of the initial two hundred and seventy five million affects and cogs synergy targets in fiscal twenty two but the remaining coming in fiscal twenty three i'm proud of the teams effort and competent this piece of execution will continue at are analyst day next spring will update investors on our progress as well as provide more details on phases two and three which relate to additional savings from infrastructure optimization and revenue synergy respectably before turning to queue and eight i'd like to congratulate might look eerily and his promotion to vice president of investor relations and financial planning and analysis look forward to working with you mike in this continued partnership and be handed over to take you in a
spk_9: thanks for shop
spk_1: right with that was good fortune a session get herself to one question in order to allow for developer disciplines on the call yup all question please reach you will take your question if time allows but that we are first question please
spk_0: for those participating by telephone dial and if you have a question please press star and the number one on your phone if your question has been answered and you wish to remove yourself from que please press the pound key if you are listening on the speakerphone please pick up your handset we are asking a question will pass for just a moment to compile the roster your first question comes on the line of john pitzer with credit suisse
spk_10: yeah good morning i thanks for the me ask the questions and congratulations on the salt quarter events for shot if i exclude kind of the maxim revenue in the october quarter that the quarry the i business just came in line with the midpoint of the original rage with which is clearly not horrible but just go given strength of business and and kind of your penchant to tend to give up side and the view that maybe maxim was more supply constrained that eighty i'm just wondering if he can help us understand that dynamic and maybe it's getting rectified and the january quarter being guided about seasonal but for their supply constraints in the quarter that impacted either revenue and or margins and any kind of conversation around that would be helpful
spk_1: yeah thank you for the question john and it's a it's a pretty board and throw in the in the past quarter organic supply had the some impact from some covert shutdowns in southeast asia the affected much of the industry we still got we still did grow sequentially in the fourth quarter but ah as as we've been talking about for the laptop a quarters our supply has been limited and revenue really the function of supply so that pick up the people over pressure on the on the revenue the line and you'll see that to you'll see that correct itself as we go forward
spk_0: they get
spk_11: they shot your next door next question comes from to see a hurry with goldman sachs i got sucked in the morning thanks for taking the question then does mike congrats on on the promotion i guess i had a question on on pricing also long term supply agreements quite a few of your years or appears in the industry have talked about approaching customers or or customers approaching them about long term agreements i think you gave a couple comments on past cosby if he can update us on how you're thinking about initiate initiatives that sort of that would be super helpful and how you're balancing that with your long term purchases of way for capacity i'm in any comments on how to think about pricing
spk_2: broadly going forward would be super helpful thank you
spk_1: yeah thanks so much well why don't i take pricing and i'll let vince is kind of speak how we think about longer term so in the up that the the short answer is f for twenty twenty one we've been talking about rising cost inflation's over the course of the year and within raising our prices a goal of neutralizing the impact the margin i would say that in imma in the fiscal year the just finished cost increases and price increases were not completely synchronized so it's very likely that cost inflation outpaced or pricing actions for the year and we're likely at a at a modest of my head when to the year as we go into twenty to twenty two were looking for the for the inverse of that we're looking for pricing net of play
spk_2: patient to be to be a modest tailwind to the year as the price increases the have begun begin to get more traction and the and we believe that their that while we still will have some cost increases over the course of the year most of those are now baked into into the run rate then i'll be a touchy i can take care of his living longer term view things you know a think it's to to say certainly from our standpoint that price increases aren't new you know we've been systematically raising prices and company for many many years i think we've talked about before
spk_1: you know we continue to deliver increase in value in our new product streams and we also maintain products were customers that are often more than twenty years in or twenty years old and vintage terms
spk_2: yeah know we've taken a very measured price a approach to him over the last year the you know we've been very transparent with our customers as well that price increases a really morbid passing on costs rather than looking to and hunting or margins last comment on pricing
spk_1: i think the industry as we approach this kind of poor post moore's law era
spk_2: we're in a and era now i believe of structural price increases rather than cyclical and other words i think you'll start to see inflation sustained for the industry and in the years ahead ah yeah no it's been proven over the last couple of years for certain that damn sunday's are
spk_1: you know the roots of a modern digital economy
spk_2: i think customers understand as well that importance and the value that is increasingly created by semi so you know i believe that damn has a said inflation will persist
spk_12: and it'll it'll moderates but i think it's a facet know of the the business structure of the send the industry and indeed he eyes business
spk_0: i can think of here
spk_13: your next question as from twice weinberg atlanta cecil
spk_2: yeah thank you and congratulations on the recommends oaths and and inferior probably not going to share revenues energy numbers for the until the analysts they they could you perhaps just give us some examples of that in a potential revenue synergies between a maximum and a the athletes yeah thanks story and got think
spk_14: i mean there are many many but i think i mentioned in the in the prepared remarks for example that to a maxim is very underrepresented in the industrial space where area is very very strong in a half our business
spk_2: total business it is industrial and it's a very very small part of maxims business and where i see the opportunity there is really on the parasite of things power management in particular
spk_15: ah you know it's the fastest growing segment in the in the analog space and i think generally across the board were still under represented as a company in power
spk_2: am you know what we will we have today have approximately fifty two point three two point four billion dollars of combined power rather news in my senses we can double that in a reasonable period of time and we give a lot more detail on that when we get to the the up the investor investigation over the next couple of months and from an application market standpoint that just like to point to data center and you know the the power management solutions that maxim has for companionship with cloud processor or said ai machines accelerators and so on i think will combine very nicely with a the ice data center of micro modules
spk_1: ah and then in automotive connectivity maxims gym sell high speed linked technology
spk_2: i use dad you know it in our in cabin connectivity portfolio will enable us to optimize solutions and address a lot more applications in the car and that's a nice companion as well to a eighty eyes a to be connectivity solution for for audio and last but not least you know maxim has added a lot of heft to our be a mess portfolio ah and you know our our portfolio know is double the size it was pretty maximum solar and as a mentioned in again in the prepared remarks
spk_13: in a we now sell to seven out of the top ten or younes in the electric car area so and there's a lot more examples but are there the primary ones i'd like to point out at this at this stage
spk_16: and three article current events
spk_17: i'm sorry your next question as hat the deck area with bank of america securities oh thanks to take my question ah thank just wanted to get yard or perspective on on the shape of of this guy twenty two as he's got that your q one outlook implies i believe about nineteen percent pro forma i say that yeah that's well above the on your closest analogue be as with any kind of
spk_2: rationing from a cure for arm and if i were to assume that que one and as canada no point of the yet and you grow our supplies sequentially in about that points to another they did say it's got so i know you're not getting fully a guidance but i'd be thinking about it the right way and what could be the puts and takes up from a supply and and also in may
spk_1: expect perspective as we go to the yeah yeah that's perfect so i got these give us some shape on that so you know when we look across i will look into twenty two
spk_2: we can see growth across all the various market sectors of for the year and i think it's possible that will see another double digit top line at year for any i and you know that the premier reasons well with got a very strong backlog as we enter the year ah we're seeing brought this demand continue
spk_1: i think also were see some improvement generally speaking out with each passing month
spk_2: we're seeing improvements in supply so well i think that line of sight gives us increased confidence and that both internally as well as externally ah you know we're in catch of modem pricing so i think you'll see some significant contribution and twenty twenty two from pricing activities ah i'm at all so you know inventories continued to remain low in the distribution channel and of course and the customer site pretty much and abroad desks
spk_1: so i think i'm over all twenty two should shape up to the and good year and you know we've gotten many many drivers their on our site
spk_8: the that to add maybe just double clicking on the supply item for ten to provide clarity we have them out we put in a fair amount of equipment orders for the legacy eighty i operations so we would expect eighty i capacity to
spk_17: continue to increase quarter on quarter over the over the coming and coming fiscal year on the maxim hi are we done the same but that on both ordered only when and when that when the deal closed so given the long lead times from the am from the salary cap guys were probably unlikely to see a meaningful increase in maxims ability
spk_18: it's to supply until the tail end of the yourself ah unfortunately i think maxim from a fiscal your basis or probably a little bit of dragged off and growth that just because it down with we can't get the tools fast enough
spk_19: and it may have a thank you
spk_20: your next question i am i a british she lost our with be and now i thank you very much and actually thanks to mike morning umbrella providing can hammering point but i just wanted to say thanks for might for providing aldi let's get you that really goes along with transmen pizza really appreciate them on my question is on lead time and man the expedite is where to see the what you're seeing versus what t i highlighted liquid are they different than what we heard from other companies says fiscally a you seen expedites
spk_1: a narrow down and and then where are you need them cutting the last earnings call you had mention own my club had mentioned that do you have twenty five percent hot spots and some color on on those with the help thank you
spk_8: a sure amber wet were really not seeing much of a change in out that customer up on customer buying behavior book but the bill is well above one i in the fourth quarter so you know our outlook to grow a quarter on quarter for the first quarter in what is normally a feeling weak a corner is a reference to that are backlog increase
spk_1: there and we're starting to thousand and twenty two with a i with with a very high level and we have not seen much as change in cancellations or push out so we're continue to do what we have what we have been doing and that is were reviewing with failed and abscess for red flags that would indicate you know there's some level up turning in the market we haven't seen anything a notable you'll am really it's it's pretty strong cross are all and markets and all geography and as we've said before we manage our business ansel through so we yeah we really wow look through distribution to get out to get insight from where our products are going on am ah
spk_21: the to sell through basis to understand what's happening in terms of who's buying and where it's been shipped do so
spk_22: we were were prepared for things to to change but death i would say right now we continue to feel bad
spk_2: as as it did a quarter ago yeah i think i'm brioche bun emblem life respect
spk_20: ah you know the number of conversations that i've been having with customer certainly hasn't slowed down
spk_1: ah and in these conversations it's pretty clear to me that what were being requested to support his real demand so our customers are trying to get products at the door and they're not building inventories of this point in time canada and had the lead time and change vs where they were last quarter
spk_20: i'm at it's are our adventure the product and depends on the market so we have that we have some areas where the continue extends and others that have that that of stabilize so overall ali times are are above normal and it's not what we want them to be but damn advice is her product
spk_23: and market specific given the diversity of what we make and where we make it think things to say lead times have stabilized
spk_0: okay thank you for the confusion
spk_20: there's a rich your next question comes from stacey rez gone way that burn seed research
spk_1: hi guys that for taking my questions on i wouldn't ask a little more about the shape of the synergies am i think you'd said the costs energies would be in forty percent this year and or maybe next year could you give us some idea how to those without between our backs and gross margin and cards and what is the proper of sort of all in baseline for our backs that we should be building no see
spk_24: energies off of and i guess finally up with gross margins along the same lines given you got pricing and and other such as a tailwind him to see revenue growth you still think the que one goes margins where were they want to coming out is that are that the talk for the have given however the else most of
spk_1: yes out station the way to think about the of the cost synergies is that we we said roughly forty percent and the coming fiscal and then the balanced in twenty twenty three the majority of the coming fiscal will actually be in cost of goods and then in twenty twenty three you'll see that flip to be the majority of that's coming in in attacks
spk_25: well sky tell you that their the the
spk_26: it and else make it relevant the other that out all that during that phase one are we will talk more about face to at the atlas day and will look to increase their sergi targeted at that time that the guess and question was margin of a bad for shot that i got on the moines what is a proper sort of by current like falling run right pop facts right now
spk_27: you can look are are one or first quarter guide and as probably a good level rory our backs i would say we'd we'd in that guide their it about twenty million dollars annual ah as we took out in our fourth quarter so maybe add twenty million to that but for the runway when you as as it
spk_2: i'm sorry but you know i've got plan
spk_1: yeah and gross margin killer the the first quarter
spk_8: in the see my tends to be you'll have a lower because we have the holly shutdowns and up and this first quarter here i will have a full quarter of maxim which us as a as many of you know had lower gross margins than standalone eighty i so we've got some we've got some head when coming from that the tailwind if we got the revenue that their that coming and strong and
spk_1: pricing as i mentioned earlier is gonna be a start to be mildly creative so all and i would i would think gross margins kind of sequentially think flattish is a is that is a fake model
spk_28: gotta tell her that i think that and and i use the right and got partner for the year that the plan is for to continue to to rise throughout the year assuming demand remain strong and mix doesn't change given synergies and also our pricing options
spk_29: go next question please your next question is are holland sir with jp morgan morning congratulations on a strong results in execution on on your inventory the think you mentioned that the country to be below your tire range and seventy eight weeks and i know that on a finished goods perspective
spk_8: at least two cute three that was down you of the year it was down you to date worth is an increase in total employees which implies to me that confinement in a direct customer inventories are also quite mean and the managed on and so i guess what's it what's your view on when the team and your customers will be in a position to build documentary
spk_1: or is it just hand them out for the next several quarters yeah i think if i think it probably looks to be continued hand to mouth for up to the next couple quarters our our our inventory numbers are a little bit too little bit confusing because of were some of the map it's in there so of just go back to what i said in the prepared remarks days of inventory was down slightly the the internal inventory balance with up as we built a raw materials and whip
spk_29: do you have some noise in their from maxims inventory being added into ours middle of a quarter as well as the purchase purchase accounting map which requires up to do a step up that south adjusting for all of that we were we were are up slightly are in terms of us a the i balance sheet inventory and most of that
spk_1: was in whip on the channel five it remains were appealing and a well below where we wanted to be and that causes some challenges at on customer service as it does for everyone in the industry we have we don't see that abating at least for up to the first or second quarter and in a week it's hard for us to see further out than that
spk_0: great thank you
spk_13: they haven't we weird or last question place
spk_30: your last question is from cj muse with evercore
spk_8: yeah good morning thank you to take in the question i guess the question on supply and gross margins as you know get to school twenty two can you speak to growth you are you anticipate from internal vs extra of supply and and that based on that how should we checked about the implications too gross margins thank you
spk_1: internal says extras so cj the the a that's a lot let's break down the dynamics on our on the internal supply i mention that eighty eyes internal capacity will continue to improve as we go through every quarter as we bring more equipment online
spk_2: and the maxim side i mention that is that is pretty much flat for us for most of the year were optimistic that with might be able to see some improvement towards the tail end of the year as we get it as we get more equipment in on the external side i will say than that
spk_1: vince himself as personally involved in conversations with our us with our found your partners and though you know looking to have to get additional an additional way for capacity when he when we can
spk_31: but it's very much driven by a by what nodes are available and and maybe i'll i'll past events here to add bit more competent he even having a lot of conversations he got a think the best answer we can give you a teacher is that you know we vindicated we expect gross margins to increase throughout the year
spk_1: and you know we've we've got a hybrid models so when in know expect
spk_0: two
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