Analog Devices (ADI) Bench

Analog Devices, Inc.

(ADI) NYSEJoe Eirkson, Katie Lally, Matt Lochansky

The Nittany Lion Fund, LLC.

Penn State Investment Association

Information Technology Sector

Team Recommendation: Bench

Introduction

Description

Key Drivers Valuation Conclusio

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• Industrial Segment Growth1

• Mobile Infrastructure Exposure2

• Best-in-Class—Data Converters3

• 12 Month Price Target:

$50.66

• Appropriate Purchase Price:

<$42.00

Top Three Reasons to Bench:

3

Company Description

Introduction

Description


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Analog Devices, Inc. is a world leader in the design, manufacture and marketing of high-performance analog, mixed-signal and digital signal processing integrated circuits (ICs) used in virtually all types of electronic equipment

New organizational structure in 2009 introduced two focus groups: Core Products and Technologies (CPT):

product focused Strategic Market Segments (SMS): end

market focused Operates in 18 countries60,000

customers Headquartered in Norwood,

Massachusetts Employs approximately 8,300 people Operational business segments include:

Industrial, Communication, Consumer, Automotive and Computer

CEO Jerald Fishman

Revenue Breakdown

Introduction

Description


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United States19%

North/ South

America6%

Europe 25%Japan

16%

China18%

Rest of Asia16%

Geographic

Industrial46%

Automotive12%

Consumer19%

Com-munic-ations22%

Computer2%

Business Segment

Industrial Segment Growth

Introduction

Description


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Expected 8-12% growth over 5 years

Shift in motor control technology increased demand for signal processing

Demand driven by customers’ needs for increased: Energy efficiency Industrial automation Advanced instrumentation

Significant growth opportunities in Asian markets—particularly China

Expected 10-14% growth over 5 years

Increased demand for imaging and patient monitoring ADI is a market leader Strategic partners optimistic

about 2011 spending Healthcare trends to increase

demand: Increased need for highest

speed and channel count in medical imagining systems

Demand for improved measurementincrease diagnostic accuracy

Expansion of telemedicine; portability

Greater need for secure communications capabilities

Industrial and Instrumentation Healthcare

Mobile Infrastructure Exposure Appetite for data/video continues to

accelerate the need for more advanced based systems, 4G or LTEplays directly to ADI’s signal processing strengths 60% of ADI’s Communication segment comes

from communication infrastructure and wireless Virtually every wireless call, text, picture or

download today passes through an ADI IC Drivers of growth:

Need for higher performance radios Higher density of channels to support increased

data Improved power efficiency Smaller footprint Lower cost per channel

Short-term and long-term benefitsupgrades to 3G and 4G now and will continue in the futureIntroducti

onDescriptio

nKey

Drivers Valuation Conclusion

Mo

re rollo

uts

/up

grad

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Best-in-Class—Data Converters Market leader in data converter

technology (46% market share--exposed to literally every region)

In 2010, accounted for 47% of sales (29% increase from 2009)

Data converter market expected to increase 9% every year through 2015

Demand for ADI converter technology driven by: Proliferation of digital systems Increasing number of channels of signal

processing in new, emerging applications

Data converters determine the overall performance of a systemADI offers high-performance, best-in-class solutions

Continuously improving architecture and process technologies to meet customers’ needs

Introduction

Description


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ADI Data Converters

Power Solutions

MEMs

Amplifiers

Radio Frequency

Customer Design Process:Begins with ADI data converters incorporates other components of ADI product portfolio

Company Risk Dependence on third-party subcontractors:

Relies on subcontractors and third-party wafer fabricators

Generates 50% of its revenue from products at third-party wafer-fabrication facilities

Risks: reduced control over availability, capacity utilization, delivery schedules, manufacturing yields and quality and assurance costs

Lack of long-term sales contracts: Demand may be volatile in certain end-markers (Long-term contracts are unusual for Semi companies

due to constant technological change and upgrades) Intense competition:

Technological Pricing

Fluctuations in foreign currency: Very sensitivederives 80% of revenue from

international marketsIntroduction

Description


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Sector Risk

Introduction

Description


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Industry is highly cyclical—vulnerable to economic downturns Most semiconductor companies carry risk due to increasing R&D

expenses in the industry Higher inventory levels, lower utilization rates and softer orders

pose risks to industry’s profitability Increased consolidation across industryeconomies of scale

10Introduction

Description


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ONNN’s Back-Up Plan The general Semi market is expected to grow 5-9% this year Play to reduce exposure to the Auto Industry

Negative outlook for Autos for the next 1-2 years Auto market accounts for only 13% of ADI’s revenues v. 22% of

ONNN’s revenues Diversify geographic exposureless reliance on one region (like

ONNN and Japan)

Sector Strategy

Current Allocation Proposed Allocation

ORCL12%

FISV15%

APH14%

GOOG17%

IBM20%

EMC15%

MRVL9%

ORCL12%

FISV15%

APH14%

GOOG17%

IBM20%

EMC15%

ADI9%

Comparable Analysis

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Description


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Ratio Analysis

Introduction

Description


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Five Year Summary

13Introduction

Description


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Growth Analysis & CAGRs

14Introduction

Description


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(10.0%)

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

Growth Analysis

Series1Series2Series3Series4Series5

Time as of 2006

Gro

wth

or

% o

f S

ale

s

Projections

15Introduction

Description


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Discounted Cash Flow

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Description


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17

One Year Stock Chart

Introduction

Description


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18

Debt Distribution

Introduction

Description


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Team Recommendation: Bench

Introduction

Description


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• Industrial Segment Growth1

• Mobile Infrastructure Exposure2

• Best-in-Class—Data Converters3

• 12 Month Price Target:

$50.66

• Appropriate Purchase Price:

<$42.00

Top Three Reasons to Bench:

Questions or Comments?

Documents

Analog Devices (ADI) Bench