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ADI's Fishman pitches analog investors

March 12, 2010 // Bolaji Ojo,

While skeptics argue that the Analog Devices Inc. president and CEO faces big challenges in talking up his company's value to investors in a tough market, Fishman remains undaunted. Analog Devices, he insisted during an annual Analysts' Day on March 11, offers big opportunities for investors looking to add high-performance, proprietary analog semiconductor technology to their portfolios

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Analog Devices (Norwood, Mass.) deserves a higher valuation on the
equity market, Fishman said, and investors need only to scratch the
surface to unearth value in a business he said has changed dramatically
over the past three years.

"We want to get higher returns for our shareholders," Fishman
said. "In order words, we want to capitalize on our investments because
we are not done yet. ADI has realistic opportunities to grow, we have a
model for growth and we have a credible team that is committed to
executing our vision."

This wouldn't be a hard sell except that Analog Devices plays
in a sector plagued by investor doubts over consistent and sustainable
growth, fluctuating unit demand, extreme pricing volatility created by
the number of companies in the market. Furthermore, analog vendors have
often been viewed by investors as the less attractive, junior players
in an industry characterized by overwhelming investor focus on the
faster growing digital IC segment. That segment is dominated by
companies like Broadcom Corp., a darling of fund investors. Broadcom's
stock price jumped to a new 12-month high this week.

"Our clients often don't see analog stocks as key components of
their holdings," said an analyst attending ADI event. "They cannot as
easily predict the performance and returns of the analog companies
because there is so much variation in sales from one year to another,
and it's difficult making long-term investment planning because of

Adopting a strategy that is unusual among corporate CEOs, the
63-year-old engineer and CEO is directly courting investors. Recent
moves to reduce manufacturing costs along with focusing on
higher-margin product segments have turned Analog Devices around,
placing the company on a growth trajectory that should push it above
market expectations, Fishman said.

He also told analysts and fund managers here that Analog
Devices should not be lumped with others in its market segment since it
possesses competitive advantages. Among them are its technology
portfolio and product base and a renewed focus on cost controls through
manufacturing efficiencies

Final act?

Fishman joined Analog Devices 29 years ago and became CEO in
1996. ADI's board recently renewed his term as CEO for another two
years. He may not want another term after 2012, although Analog Devices
is known for keeping its top achievers. Ray Stata, the 75-year-old
board chairman, has held the position since 1973, serving as CEO from
1973 through 1996. Most of company's senior executives have on average
been with the semiconductor vendor for 25 years.
If, as expected, Fishman steps down as CEO in 2012, he has a
small window of opportunity to deliver what shareholders want most:
increased stock valuation. It appears Fishman and his management team
are keen to deliver. Another senior executive at the conference focused
on the company's strength in key markets, including five areas
considered strategic to its future.
Among them are industrial and instrumentation, the company's
"biggest and most profitable" business segment, said Vincent Roche,
vice president, strategic market segments and worldwide sales. Analog
Devices is also pointing at opportunities in the healthcare sector,
communications infrastructure, automotive and tightly focused segments
of the consumer electronics industry.

Recent actions are already winning the company favorable
attention from investors and analysts. Conscious of the need to reduce
costs and bump up margins, Analog Devices closed a wafer fab in
Cambridge, Mass., at the end of its last fiscal year and has increased
wafer sourcing at foundries like Taiwan Semiconductor Manufacturing Co.

The company also increased the number of products sourced from
external sources to 49 percent in fiscal 2009, up from 44 percent and
43 percent, respectively, in the prior two fiscal years. ADI will soon
begin reaping the benefits of those moves, according to an analyst in
attendance here.

"The most dramatic thing we did was to reduce our manufacturing
costs," said ADI vice president and CFO David Zinsner. "We are very
optimistic about being able to drive our operating margins up. What we
didn't do was cut deeply, which would have affected our long-term
growth. The net effect is a dramatically different operating model."

Fishman now has the added task of getting investors to
acknowledge these efficiencies and reward the company, regardless of
what is happening in the overall chip business and the analog sector.


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