David Zinsner - Chief Financial Officer and Vice President of Finance Mindy Kohl - Director of Investor Relations Vincent Roche - Vice President of Strategic Market Segments (SMS) Group Jerald Fishman - Chief Executive Officer, President and Director

Shawn Webster - Macquarie Research James Covello - Goldman Sachs Group Inc. Terence Whalen - Citigroup Inc Uche Orji - UBS Investment Bank Vijay Rakesh - Sterne Agee & Leach Inc. Parker Paulin - Wells Fargo Securities, LLC David Wu - Global Crown Stacy Rasgon - Sanford C. Bernstein & Co., Inc. Ross Seymore - Deutsche Bank AG Romit Shah - Nomura Securities Co. Ltd. Craig Ellis - Caris & Company John Pitzer - Crédit Suisse AG Jonathan Smigie - Raymond James & Associates, Inc. Venkatesh Nathamuni - JP Morgan Chase & Co

Good afternoon. My name is Vivian, and I will be your conference facilitator. At this time, I would like to welcome everyone to Analog Devices Third Quarter Fiscal 2011 Earnings Conference Call. [Operator Instructions] Thank you. Ms. Kohl, you may begin your conference.

Thanks, Vivian, and good afternoon, everyone. This is Mindy Kohl, Director of Investor Relations. We appreciate you joining us for today's call. If you haven't yet seen our third quarter fiscal 2011 release, you can access it by visiting our website at www.analog.com and clicking on the headline in the news section of our homepage. This conference call is also being webcast live from Analog.com, select Investor Relations and follow the instructions shown next to the microphone icon. A recording of this conference call will be available today, within about 2 hours of this call's completion and will remain available via telephone playback for one week. This webcast will also be archived at our IR website. Participating in today's call are Jerry Fishman, President and CEO; Dave Zinsner, Vice President of Finance and CFO; and Vincent Roche, Vice President of Strategic Market Segment and Worldwide Sale. During the first part of the call, Jerry and Dave will present our third quarter results as well as our short-term outlook. The remainder of the time will be devoted to answering questions from our analysts and participants. During today's call, we may refer to non-GAAP financial measures that have been adjusted for certain nonrecurring items in order to provide investors with useful information regarding our results of operations and business trends. We have included reconciliations of these non-GAAP measures to the most directly comparable GAAP measures on today's earnings release, which is posted on the IR website. In addition, we have updated the schedules on our IR website, which include the historical quarterly and annual summary, P&L for continuing operations, as well as historical quarterly and annual information for revenues from continuing operations by end market and product type. Next, I'd ask you to please note that the information we're about to discuss includes forward-looking statements intended to qualify for the Safe Harbor from liability, established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements include risks and uncertainties and our actual results could differ materially from those we will be discussing. Factors that could contribute to such differences include, but are not limited to those described in our SEC filings, including our most recent report on Form 10-Q. The forward-looking information that is provided on this call represents our outlook as of today and we do not undertake any obligation to update the forward-looking statements made by us. Subsequent events and developments may cause our outlook to change. Therefore, this conference call will include time-sensitive information that may be accurate only as of the date of the live broadcast, which is August 16, 2011. With that, I'll turn the call over to ADI CEO, Jerry Fishman

Well, good afternoon. As you know, from this afternoon's press release, ADI's revenues for the third quarter were approximately $758 million, which was up 5% from the same quarter last year but down 4% sequentially from Q2. As you may recall, we were somewhat cautious about our Q3 revenues, given our well-above seasonal 9 to 10 revenue increase sequentially in Q2, which we believe was in part, the results of inventory builds in the supply chain due to Japan earthquake-related supply chain disruptions and the fear of industry-wide supply reductions. It now appears as if customers built more inventory than we anticipated last quarter, and they liquidated it more rapidly than we had planned for. Notwithstanding these perturbations in supply, most of the end markets we serve remain relatively stable in Q3, particularly the communications market, the automotive market and also the industrial markets. Our Consumer business recovered slightly in Q3, but less than we have planned at the beginning of the quarter. Our revenues in Q3 were impacted by 2 distinct drivers, both of which we believe had more to do with supply-chain issues than end demand. First, a portion of the revenue shortfall was a result of a few communications infrastructure customers, delaying orders to ADI in response to component shortages from other vendors, as well as the liquidation of excess safety stocks that they built in Q2. Our shipments to these customers returned to more normal levels in July. While there were many other puts and takes at our other large customers, for the most part, revenue at those customers was in line with our forecast. The balance of the shortfall was from the 50,000 small and midsized customers, served through our distribution channel. Our distributors report that their customers have been burning off excess inventory, particularly from suppliers like ADI, who had consistently short lead times and kept up with the increased order rates that we experienced in the second quarter. Recent conversations with our 2 largest distributors indicate that inventory reductions are proceeding in an orderly fashion with few cancellations and few backlog adjustments. I think it's instructive to look at the end market trends in both Q2 and Q3 to better understand these trends and most importantly, the implications of those trends going forward. Industrial revenues declined 5% sequentially in Q3 after growing 14% sequentially in Q2. This looks to us like an inventory build in Q2 that was reversed in Q3. On a year-over-year basis, industrial sales for the quarter grew 8%, which is consistent with our expectations for the industrial business over the long term. While our largest industrial customers in the United States and Europe are somewhat more cautious than they were last quarter at this time, for the most part, they're planning for a stable environment for the balance of the year. And our industrial sales in China, are continuing to grow. Automotive revenue declined 5% sequentially in Q3 after growing 12% sequentially in Q2. Year-over-year, our Automotive sales for the quarter grew 21%. We now have significantly more content in autos than we did last year and our revenue is more dependent on content growth than on unit sales. We're extremely well-positioned in the automotive market. Our current forecast for our automotive customers are also stable in the near term, and unless the economic outlook changes drastically, this market should remain an area of strength for ADI going forward, as our automotive revenues are now running at a rate in excess of $400 million annually. Communications revenues declined 7% sequentially, after growing about 7% in Q2. On a year-over-year comparative basis, Communications revenues grew 10% in Q3. It seems very clear to us that our Q3 revenue was significantly impacted by both Chinese and European customer order push outs, which resulted from the shortage of other vendors' components and also the associated inventory and balances that existed in those accounts. While there are still concerns about short-term demand in United States and Europe in this sector, the Asian markets report that demand remains strong and are optimistic about the balance of the year. Consumer revenue was up 4% sequentially after declining 7% sequentially in Q2, and was up less than we planned in Q3 and down 14% year-over-year. This year-over-year decline is primarily the results of our intensifying focus on only higher value-added consumer applications, where a technology is highly differentiated and our position is sustainable over many generations. Nevertheless, we have seen some improvement in our short-term backlog for consumer products, which is seasonally very typical at this point for the year and we're hopeful that this business will stabilize further during our fourth quarter. On a geographic basis, revenues increased sequentially in Japan and also in China but decreased sequentially in the rest of Asia, in Europe and in North America. While our Q3 revenues were below the plan we had for the quarter, we did react quickly to protect the downside. As a result, even on a lower revenue base, our gross margins remained about 67%, operating expenses declined 2% sequentially, essentially flat for the same quarter last year, and our operating margin was just under 37% of revenues. Inventories grew only slightly and operating cash flow totaled $257 million or 34% of revenues during the quarter. Including $0.01 that resulted from a tax catch up, earnings were $0.71, which were in line with the guidance range we communicated last quarter. Dave in a few minutes, we'll discuss more details of these financial results. As far as the order rates in Q3, clearly, orders weakened for us in May and continued at these lower levels throughout the quarter and also into early August. And not surprisingly as coincident in time with our significant reduction in the fears that were industry wide about chronic supply shortages. Nevertheless, our order rates have stabilized at these levels. And as of now, it show no signs of further deterioration. Our OEM backlog, which includes forecast orders from our largest customers, declined only slightly during the quarter, while our backlog from distribution declined more than that as a result of our distributor's stated commitment to reduce their inventories, particularly for suppliers like ADI, who provide very, very short lead times. During the inflection points like Q3 when supply is very strong, orders have proven over many, many years, not to be a very reliable indicator of future sales, since turned orders tend to comprise a much larger percentage of quarterly sales. We believe that the consumption of our products in Q3 was above our recorded orders as a result of inventory reductions at many customers. So now I'd like to turn the call over to Dave to talk a little more detail about the financial results and I'll make some closing remarks after Dave is done.

As Jerry discussed, third quarter revenue was $758 million, a decline of 4% sequentially, but an increase of 5% from the same period last year. Our gross margin remains strong despite the sequential revenue decline coming in at 67.2%, down 40 basis points from the prior quarter, and within the range we indicated on last quarter's call. The decline was due to decreased loadings in our factories versus last quarter. Operating expenses for the third quarter were $231 million, down $5 million or 2%. In the third quarter, we benefited from our lower and more variable operating expense structure, in particular, from lower variable compensation payments versus the second quarter. Toward the end of the quarter, we implemented cost control measures, which also helped reduce expenses. We plan to continue these programs in the fourth quarter to protect our profits. Operating profits for the third quarter were $279 million or 36.8% of sales compared to 37.8% of sales in the prior quarter. Obviously, operating profits were down both in dollars and percentage terms as a result of the lower revenue in the third quarter versus the second quarter. Other expense was $4 million compared to $1.7 million in the prior quarter, the increase was the result of incurring a full quarter of interest expense associated with the $375 million bond offering we completed in the second quarter. Our third quarter tax rate was 20%, down from 22.1% in the second quarter, as we revised the annual rate to 21.3%. We expect the tax rate in the fourth quarter to be 21.3% as well. Diluted earnings per share was $0.71, within the range of guidance we provided last quarter. This compares to non-GAAP diluted earnings per share of $0.75 in the prior quarter. As I just mentioned, we revised our year-to-date tax rate to 21.3% for the year, which lowered our third quarter tax rate to 20%. This catch up provided $0.01 benefit to our EPS. In addition to solid profitability, we maintained strong cash flow performance, generating 34% of our revenue or $257 million in operating cash flow. Capital expenditures were $37 million, resulting in free cash flow of $220 million or 29% of revenue for the quarter. During the third quarter, we repurchased 1.7 million shares or $66 million of ADI stock and distributed $75 million in dividends to our shareholders. At current stock prices, at least as of the close today, our dividend yield is now around 3.2%. Yesterday, our Board of Directors declared a cash dividend of $0.25 per outstanding share of common stock, which will be paid to shareholders of record as of September 14th -- sorry, as of August 26, 2011, and we pay it on September 14, 2011. We closed the third quarter with $3.5 billion in cash, of which $1.2 billion or 33% is in the U.S. Net cash, excluding approximately $900 million in debts was $2.6 billion at the end of the third quarter. Our accounts receivable balance decreased sequentially by 10% due to lower sales, and our days sales outstanding decreased 3 days from the prior quarter to 45 days. Inventory at the end of the third quarter increased by 2% sequentially and our days of inventory were 110 days compared to 104 days in the prior quarter. Although we were planning for higher sales, we were able to react and slow the inventory build towards the end of the quarter. Our distributor inventory increased a few days and is now slightly above target levels. As a result, we expect distributors to reduce their inventory levels in the fourth quarter. It's important to note that the reduction in distributor inventory will not impact revenue since revenue recognition does not -- or since revenue does not get recognized until after the distributor ships our product to the end customer. However, we are cognizant of these inventory adjustments at distributors and is factored into our plans for this quarter. In summary, despite lower-than-expected revenue for the quarter, we delivered strong profitability and cash flow and we expect this to continue. Over the course of the last 2 years, we have fundamentally lowered our cost of manufacturing, which has driven record levels of gross margins over the last several quarters. We believe that the lower cost per unit will also benefit us in the periods which can make rev demand weaker, by keeping gross margins considerably higher in previous troughs. We have also created a lower and more variable cost structure for operating expenses, one that is highly responsive to both upside opportunity, as well as the need for downside protection. We believe our model, coupled with vigilant operating expense control, positions us well to respond to whatever market fluctuations may occur in the fourth quarter. And now, I'll turn the call back over to Jerry, who will discuss the short and long-term outlook

Well, obviously, planning revenues in the short term is very challenging. On one hand, we believe that most of the decline in Q3 was the result of supply inventory imbalances and therefore, could be short lived. If we had recorded a more normal seasonal Q2, our Q3 revenue would have been at or above Q2 levels. That scenario would imply that Q4 could be a normal seasonal quarter for ADI, or approximately flat to down slightly compared to Q3. Our internal forecast indicate some sequential growth in Communications infrastructure and Automotive revenues, offsetting the slight decline in the Industrial revenues, with Consumer growing seasonally. But nevertheless, this increasing uncertainty in many parts of the global economy is very possible that all this chaos will cause a decline in demand as customers become more cautious and push out new programs and consumers reduce spending on discretionary items. If that occurs, we could see a decline in all of our end markets and our revenues could decrease sequentially. We really have no way to predict which way this will go. So as such we're planning for revenues to be in the range of $715 million to $755 million, or flat to down approximately 6% sequentially. I think when history is written, we believe that our Q3 will be mostly about supply issues and our Q4 will be mostly determined by end demand. We all have to recognize that there's a wide range of possibilities of what demand might be in Q4, given all the economic uncertainties that we are reminded of, every single day. So currently, we are planning to reduce production levels in Q4 to bring our inventory levels and distributors and on our balance sheet, down to more appropriate levels. Therefore, we expect gross margins to be in the range of 65% to 66% of sales, depending on the revenue levels that we achieve. We also plan to carefully manage operating expenses and expect operating expenses to be flat to down 3% sequentially, also depending on the sales we achieve. So with these levels, we expect diluted earnings for the quarter to be in the range of $0.60 to $0.68. Our best course of action right now is to be very cautious in the short term and work on the things that we can do to control and work on to limit the downside, while remaining very flexible to capture any upside that comes on our way. We've reduced discretionary spending and we're planning to reduce production levels to keep inventory approximately flat to Q3, assuming that we're somewhere at the midpoints of our guidance. We believe we can respond rapidly if the demand pattern improves and we intend to keep our lead times very short as we have in the last few years. We have a very natural hedge in our operating expenses as our variable compensation plans react quickly to reduce revenue growth. We're also working to ensure that we're allocating critical, strategic resources to the most important programs and away from the less-strategically relevant programs that we've invested. We're confident in our ability to manage through this period and return to solid growth at extraordinary margins and cash flow as the world becomes more stable. While our quarterly results year-to-date have certainly been whipsawed, by supply gyrations, it's important to put our 2011 fiscal year in better focus. If we achieved the midpoint of our guidance for Q4, our revenues will have increased by approximately 9% over last year to over $3 billion in 2011 for the first time in our history. Our gross margins will have increased by approximately 150 basis points. Our operating expense growth will be well below our revenue growth and our operating margins will have improved for the year to approximately 36%. Operating cash flow will likely approximate $900 million, and at today's price, our free cash flow yield is approximately 8%. These results are in line with what we plan to achieve in fiscal 2011, and we believe that we're executing well against our plan. While we can't predict the near-term future any better than anyone else, we do believe that if we're given at least a neutral economic environment, ADI could continue to grow with credible rates between 8% and 12% a year, keep improving our operating performance and keep generating a very significant amount of cash.

Thank you, Jerry. We're now turning into Q&A period, please limit yourselves to one primary question and no more than one follow-up question. We'll give you another opportunity to ask additional questions if we have time remaining.

[Operator Instructions] Our first question comes from Uche Orji with UBS. Uche Orji - UBS Investment Bank: Let me just start by asking you, there's been so much parallel drawn about this current environment with 2008, and some companies are commenting that we've already been seeing early signs of double-dip recession. The question for you is, how similar do you see this environment in 2008? And also, what is the level of ADI preparation just in case the environment deteriorates much further than your companies are guiding at the moment? I mean how much prepared are you now, relative to '08? That's my first question.

Well, of course, we don't know any more than everybody knows about what the future and to talk about what's going to happen economically around the globe is the subject, and continuously, about great conjecture about what's going to happen. But at least that's the way we see it. There are a couple of factors that tend to convince us that this is not a repeat of 2008, 2009 in the demand patterns we're seeing. The first thing is in 2008 and 2009, we saw very significant weakness in a few market segments and this time, when we look at all the product segments and all the market segments that we serve, we saw them all go down at about the same rate, which to us seems to indicate it's more -- at least for us in Q3, it's more about supply than demand. The other fact that our distributors point out to us in our recent conversation is that they haven't seen a lot of significant cancellations or backlog adjustments, which indicates to them mostly what we're seeing is an orderly reduction of inventory rather than the severe dislocations that we all experienced in 2008 and 2009. So at Analog, unlike many other companies in the industry, we had a very significant run up in Q2, well above our seasonal rates. When we grow 9% sequentially in the quarter, that typically, we'd grow 4% to 5%. That sort of rates that there was an inventory built in the channel and most of what we saw last quarter from both the distributors statistics and also the commentaries from our largest customers, the great thing to believe, it's much more about -- at least in Q3, much more about supply than demand. It's also interesting in Analog what Dave mentioned when we reported our distribution sales, which were half of our sales were sellout. So last quarter, the distributor's built quite a bit of inventory, which shows up as revenues for many companies, but not revenues for Analog Devices. So while we would all that up, and we listened to the comments from the large customers, the comments from our distributors, at least in Q3, I believe we will come to believe that it was mostly about supply gyrations, not demand. I think as far as what happens in the future, we really don't know. You could read this report or that, you can read a summary or that, I mean this editorial of New York Times or another one of The Wall Street Journal, and there's a bunch of opinions out there of what's going to happen. And we can't predict that, which is why the range of possibilities for Q4, at least as we see it, is very large. In the short term, as, I think, Dave indicated and I made some comments on, we're really being careful on discretionary expenses. We have a natural hedge on our expense growth with the variable comp plan, which when -- last year's results were coming in, was paying at an extremely high rates and has now cycle down pretty hard, and will continue to as results are getting better. We're reallocating resources to the projects and the segments, and the customers that are the most strategically relevant for us. We have very low and variable manufacturing cost structure. So I think we're in pretty good shape to react to anything the world throws at us, although I would repeat, we really just don't know what the world is going to throw at us next quarter. But I think we have a very resilient business model now, much more resilient than it was 2 or 3 years ago, much more of our costs of variable and our product portfolio is lot less volatile than what it has been. So again, if the world goes to hell, our results won't be that great, but I think we're well-suited to respond to whatever the world throws at us. Uche Orji - UBS Investment Bank: Can I just ask a quick follow up. Let me just speak on Automotive. You've seem to have grown regardless of all the dislocations now. Question for you here is, how much more runway do we see for growth in automotive? And if you can talk about segmentation by region, or also by type of car, high end or low end, you have to of course understand, what's driving that growth and how much further there is to go?

Well, historically, I'll ask Vince to comment on this in a few minutes to get his point of view. But historically, most of our growth in the automotive market has been in the higher-end cars, which are much more feature rich and have much more safety and cockpit measurement going on. So historically, we've done the best with European manufacturers, and some of the high end America manufacturers. More recently, we've done well with some of the Asian manufacturers as well. So I think at the end of the day, that business has been growing very robustly for us. We have very strong position in that business. Just last week when we were talking to the guy that runs our Automotive business for us, he tends to be very well-connected, to the build rates that our customers are forecasting. And everyone is nervous, but he's sort of indicating to us that he understands the build rates and they're commensurate with the kind of numbers and direction that we've indicated. So we'll just have to wait and see how that turns out. Vince, do you have anything else?

Yes, I think just a follow on to Jerry's points, we are very well penetrated I think today in the mid to high ends. The diversity of our business is quite good in the Automotive sector. We supply into the safety sector, the monitoring sector, sensing the battery control and infotainment. And Jerry said there's -- in the scripts, there's basically a huge demand. We're just capped by the rate at which our customers can absorb the technology. There's no fundamental limit on the performance requirements that they've got. So as -- it's not a question of unit volumes for ADI. We're very well penetrated, it's a question of just how well car sales move in the mid to high end and we'll be there. We'll do well I believe in the future.

This definitely is just -- the automotive industry ADI has emerged from, the early days when it's mostly about airbags and safety features. And even though that's still a very important business for us, particularly with our new gyroscopes that we're selling a very high volume right now. There's just so many other applications, essentially that sensing and entertainment applications that really require very, very high end analog technology and DSP technology. And it's those applications that are really driving our growth

The next question is from Craig Ellis with Caris and Company. Craig Ellis - Caris & Company: Jerry, it was helpful to get the geographic color on Industrial. I'm wondering if you can talk about some of the specific submarkets as well, such as medical, automated tests and others. Are you seeing similar trends in terms of order activity there? Or is there a divergence, given the diversity of end markets?

Well, it's similar but it's like slightly divergent. The test equipment market certainly is at the margin weaker than it's been in line with all the uncertainty in semiconductor demand out there. I think that's clear. And the medical market was probably a little weaker also to just the hospitals, really worried about capital spending and new medical course constraints in the United States and all the other parts of Obama care. But I think the other markets, the industrial automation market was still pretty strong. Instrumentation market, process control is still pretty strong. So these aren't meaningful differences, Craig, but they are notable differences in some of those end markets. Craig Ellis - Caris & Company: Okay, that's helpful. And then, Dave, you had mentioned that there are 2 benefits to OpEx. One was just the variable comp program, and then I think you mentioned that there were specific OpEx initiatives that you put in place and are working. Can you go into a bit more detail on what those are, and how much benefit are you getting in the flat to down 3% guidance in the out quarter for us?

Well obviously, it wasn't until towards the end of the quarter that we started to recognize that we might need to put some things in place. So we really probably didn't get too much benefit in the third quarter. Although it was generally around restricting, hiring and starting to eliminate some of the more discretionary oriented parts of the P&L. And that's expected to continue this quarter to make sure we maintain the appropriate level of profitability.

I think, Craig, the other thing that goes on is, when things get a little uncertain or soft, we tend to raise the bar on strategic investment and where we put the money and how patient we are in some areas that we can carry in. So I think of the margin as we go into 2012, that's going to continue. That's not a -- necessarily a reaction to softer order rates, but more a reaction to -- we have just such an enormous opportunity in some segments that we want to make sure that irrespective of what happens in the environment, we can continue to fund those things. And that sometimes takes much greater selectivity and there's more uncertainty out there. But I think the most important thing is the basic rudiments of our cost structure, it's just much more variable than they were a couple years ago, and that really hasn't hurt us much on the upside when business is great, paying large variable comp payments there, every employee in the company really helps us. But on the other hand, it really helps us on the downside when we can keep a lot of the strategic programs going and still get the benefits of being very responsive to the softness that this -- for a period of time in the order rate. So if the world really is catastrophic, we'll have to think about it differently. But right now, we think that's -- we can keep the expenses moving in the same direction as the revenues.

The next question is from Ross Seymore with Deutsche Bank. Ross Seymore - Deutsche Bank AG: Jerry, you talked about the cost structure variability before. I think a year ago, you mentioned that about 17% of your OpEx was variable. How was that in comparison today?

Yes, so obviously, it came down this quarter in reaction to the lower revenue. So it's about 12% of our revenue is now variable. Ross Seymore - Deutsche Bank AG: So as you go forward, that percentage you think will adjust, so you become increasingly variable or the fact that the revenues are falling as fast as they are and your costs are fixed, you're going to make that percentage actually stay where it is?

If we're in an environment where OpEx needs to come down, that probably becomes less variable as the variable aspect of the operating expense starts to decline. But revenues start to go the other direction, then it will expand with revenues and increase as a percent of...

I think the way to think about some variable comp plan is that, I believe we indicated a few quarters ago that there's a very simple formula that there were 2 elements of. One is the operating margins. The other one is sales growth. So the fact that we're still earning very significant operating margins, means there's still significant variable comp payment at the company, even thought the growth rate has tailed off in the quarter. So I think, you start getting into where the world starts coming on glued, I think we still got plenty of room on the variable side for those payments to go down. Ross Seymore - Deutsche Bank AG: I guess as my follow up, Jerry, you talked a lot about the supply disruptions being a bigger issue than the demand side. If demand were to stabilize from here, how long do you think it would take before the supply side of the equation was brought back into line?

Well, there are varying opinions of that. We just talked recently to our distributors about that, that have these very broad product portfolios and many customers and many suppliers. And there are some difference of opinion on that, amongst the distributors. There are -- on one end, some of them believe that it's mostly behind us and might have another couple of months to run. The other more pessimistic view is if I got 2 quarters to run. But nobody really knows for sure because the customers don't know for sure. So I'd say somewhere between a couple of months, probably at the outside, maybe one quarter or 2 quarters. [indiscernible] you synthesize all the comments from all of the distinct groups that we talked. One other qualifier would be, I think the most serious parts of that we've experienced. We saw a pretty rapid inventory reductions going on, almost coincident to the week that the commentary about supplies being available started coming out and all the panic came out of it. So I think the most significant reductions is the supply chain has sort of probably occurred and the rest of it for the next maybe a few months or worst case, another quarter or 2, are probably much less significant than the ones we've seen.

And the next question is from Chris Danely with JPMorgan. Venkatesh Nathamuni - JP Morgan Chase & Co: This is Venk Nathamuni, in for Chris. A couple of questions. One, Jerry, you talked about inventory level of distribution, the plans for your -- for ADI to reduce that inventory level. But could you help quantify what the historical level of inventory is on average of distribution is, and where it is now and where do you expect it to be next quarter?

This is Dave Zinsner, actually. So inventory, we measure it more or less by number of weeks. And inventory usually runs around 8 weeks. It's a little bit higher than that today by a couple of days. Our expectation is it will come down by a few days next quarter. Venkatesh Nathamuni - JP Morgan Chase & Co: Okay, great. Thanks. And then given the significant sell-off in the stock, and the fact that you have considerable buyback authorization, what are your plans for continued buybacks and the quantum of buyback?

Well, we have $1 billion buyback program that was authorized in December of last year. We've already purchased $200 million worth of ADI stock under that plan so we have $800 million left. I think you'll see as we have in the past, been committed to returning cash to shareholders both in the form of dividends that increase over time and buybacks. And you'll see examples of that commitment going forward.

I think, I believe is pretty attractive. These questions were a bit -- it kind of yields and the expectations for the future, even though there's a lot of gyration going on and everyone is real nervous about the short term.

And the next question is from Terence Whalen with Citi. Terence Whalen - Citigroup Inc: This one circles back against the industrial end market and some of the commentary you made there. I believe you said in some of your comments that the Chinese region within Industrial grew. I was wondering if you can give us more color around that and what gives you confidence that, that's not a continued stocking with the real demand. And also in your expectation, I think you mentioned in your baseline scenario, industrial would decline. Do you expect them to decline in a similar pace, down 5% sequentially or slighter than that or more heavily than that?

Well, we don't know for sure because we never know about whether it's stockpiling in China or not. But there's not a lot of concerns right now about supply. So where there were a lot of concerns about supply, there was much more likelihood and opportunity to stockpile inventory. Although you'll only find out about the idea after the fact, so we really don't know for sure. I think the industrial environment in China is very robust. There's a huge amount of industrialization going on that continues in China, that's been growing at a pretty good rate for a while. And even in 2008 and 2009 when the world fell apart, our Industrial business in China kept growing. So I mean again, it's always difficult to predict the future but there's a lot of good signs on that business in China. What was the second question, I forgot?

If you expect industrial to decline.

I'd say our forecast right now, at least for the people that are running the Industrial business, we're expecting that to decline slightly, which is very typical in the fourth quarter because Europe slows down and Europe is a very large source of our Industrial business. But we don't expect, at least in the forecast, we now have, any significant decline, probably on lower decline than we have this quarter, in third -- in fourth quarter than we had in the third quarter. Terence Whalen - Citigroup Inc: Okay, that's very helpful and then the quick follow up would be, you mentioned about lower factory loading. Could you remind us where utilization was maybe this quarter and what you might expect it to be next quarter? I believe last quarter you had said around 80%.

Yes, so second quarter utilization was 80%. This quarter, it was -- third quarter, that was, it was 77%. We were expecting it to be kind of in the low 70s for the fourth quarter. And that's built into our gross margin assumption.

And the next question is from Steve Smigie with Raymond James. Jonathan Smigie - Raymond James & Associates, Inc.: I know you guys don't like to forecast 1 quarter ahead. But just curious if you could walk us through the logic a little bit about how we would think about the January quarter? Since you seem to have some unusual seasonal patterns here, typically, if the January quarter will be down a little bit, but since you had the 2 sort of sequential drops here for July and October, is it possible that, that could be more flattish to up, or would you still think that might be potentially down?

Well, I mean we -- I'd have to say we really have no idea. My own personal opinion is that, we'll see more effects in the next couple of quarters that are based on what's going on in the economy and overall demand patterns than we will seasonal patterns that are considered to be normal. We look back and we always look back at the last couple of years, what's the seasonal pattern for the quarter. And I can report to you that our analysis indicated that we can't figure out what the seasonal patterns are. The only -- because there's so many different factors that go into each year, it seems lately, that those sort of more exogenous factors have more to do with -- than the typical seasonal factors. Less of our business is consumer than it used to be, so that might change the seasonal factors. More of our business is industrial and infrastructure, that might change the seasonal factors. So I just don't know enough that we'd look for sort of what the backlogs are, what customers are saying that we do, that we rely on long term going back 3, 4 years and trying to predict 1 quarter's growth relative to another. It's just too many other factors. Jonathan Smigie - Raymond James & Associates, Inc.: And you mentioned a little bit about -- it looks like telecom might be up a little bit. I'm just wondering if you could talk about what's driving that in that sort of -- more of a something that happens, continuous to evolve over the next couple of quarters or that's just from some lumpiness? Any color would be helpful.

Well, I think in the third quarter, demand was generally strong across digital. And I think our sales were certainly crimped by the lack of supply to our largest customers. As a result of the tsunami in Japan, but what we're being told by our largest customers is that they're optimistic about the second half of the calendar year, and we are expecting to have good results in the fourth quarter and hopefully, in the first quarter as well. But I think overall, there's a very strong build out in China, particularly in the replacement of the GSM cycle, TD-SCDMA and particularly, in the developed world, the build out of LTE 4G is moving at a fair pace.

Yes, I think the only way we can report is what the customers tell us. We have a very significant share in that business, particularly in the analog part of the buildup materials. And we have that share as the largest market shareholders, in the wireless business. So I think what Vincent said is what they're telling us. And that's why we believe that in the absence of real economic uncertainty accelerating, I mean that's what those customers believe. So we'll stop doing and see how that turns out. Jonathan Smigie - Raymond James & Associates, Inc.: If I could just slip a follow-up on that. Specific thoughts on the optical market, the build out of -- say, 40 to 100 gigabit per second infrastructure the slightly different infrastructure than anything else?

Well as you probably know, most of the -- in the optical build out is in the energy sector, the edge for 10G. So I think in terms of 40 gig, 100 gig, there are certainly technologies for the future but most of the action that we see is the 10 gig, and also to some extent, 2.5 gig.

Mostly a bargain today.

Yes, certainly in terms of the volumes. But there's certainly a deployment of 40 gig, 100 gig in the core, but we're expecting -- in terms of volumes, we certainly expect 10 gig to be dominant.

And the next question is from Jim Covello with Goldman Sachs. James Covello - Goldman Sachs Group Inc.: Dave, I heard what you said earlier about inventory being down a couple days. Was that specific to your balance sheet or the distis or some combination of both?

I would call it some combination of both. Basically, we're looking at inventory ballistically. But inventory on our balance sheet, the inventory at distribution. We know in aggregate they're going to be down, difficult to determine how much distributors will drop their inventory versus what we'll do with our inventory. But in aggregate, we expect inventory to be down. James Covello - Goldman Sachs Group Inc.: I guess this question is a little tricky to ask clearly, so I hope I can pull this off. But if I look at how much inventory grew on the distributors' balance sheets this quarter, and then their guidance for their component sales to be down in the upcoming September quarter, do their orders on you -- are there orders on you consistent with that, if that's clear?

Well, the orders on us have been weak during the third quarter. I don't think there's any doubt about that. Our conversations with the distributors, I mean they seem to indicate they want to get their inventories down. They haven't issued any massive directives at their product people to desecrate the inventories. But I think having said that, we've seen the orders from the distributors on Analog go down at a faster pace than the orders of our customers and our distributors, and that's indicative of the distributors going to reduce inventory. And that's -- we've been pretty cycled for -- I'm sorry to admit it, that part of 20 years, and that's what you typically see during these periods, where the distributors wake up and they say, "Oh my god, I've got too much inventory," they start flushing it. And the customers, a little -- a lot less so than the distributor. Now why would you look at all these book-to-bill ratios, all these things that practically, every folks are trying to predict the future. In these kind of times, they're totally useless. Because unless you understand what's going on in the inventory, all that other stuff doesn't mean anything. And those numbers can change quickly on the other side as they do on the downside. So that's the best we can do on that, Jim. James Covello - Goldman Sachs Group Inc.: I appreciate that. If I could ask just one other one. How do you think about -- I heard what you said about utilization, Dave? How do you think about breaking that up between your internal wafer starts today? Are you going to favor internal wafer starts over outsourcing in order to keep utilization a little bit higher? How does that break down?

We weren't really managing utilization to manage the inventory levels. To make them at an appropriate level to keep our lead time short but not build inventory that we're not going to need, we're going to have to throw away.

A lot of the product we have, there's a small amount of products that are sizable between external foundries and our internal fabs. But mostly, the very fine line, seamless products, we don't build internally. So we don't have much of an ability or interest in sort of taking stuff that we're building, and TSMC and bringing it inside, although we have some abilities to do that. So as Dave said, we just manage the internal factories to the internal loads that we see from our customers on those things, and try to keep the inventory reasonably low but still be responsive just to get some upside. Because with all the doom and gloom out there right now, 1 month or 2 months from now, the world could think very differently about it. And the one thing we've learn from last cycle is you keep your lead times short. So we've managed the inventory, to keep the lead time short. Last quarter, a very interesting statistic is we shipped 99% of our revenues with less than the 4-week lead time. And that's what we intend to keep doing. And as the cost of that is a little bit extra inventory, fine, but we're not going to let the inventories run up because we'd like to get the upside when the orders go up. So I mean that's the complicated formula that we follow and that's the way we want the manufacturer reloaded.

I think one of the other things that you might be -- part of this question is our gross margins of 65 to 66 are really good relative to where they may have been in other cycles where we've seen a decline in our revenue. And the reason is, we fundamentally have lowered the cost per unit of our product. And so if you look at 2008 even in our peak, we were generating 61% operating margins, we're generating for 400 to 500 basis points higher than that, because our cost per unit is actually fundamentally lower than that.

A lot of the questions that we've gotten over the last couple of quarters have been -- is the things that we talked about, about the variability of the fixed cost structure and the lower levels of the variable cost structure and manufacturing. Are those real or just anomalies? And I think what we're beginning to see is what we have sort of thought all along that these are not fleeting cost reductions, and changes in expense format. They're lasting and when you can put the kind of results up that we put up this quarter, even though they were lower that we had thought when we had a pretty sudden and relatively unexpected decline in revenues, and we're expecting there's a wider variability on the numbers for next quarter, we're still expecting to earn very significant profits. I think that's the sign that the kind of things we've done are now part of the business model at ADI.

Your next question is from Stacy Rasgon with Sanford Bernstein. Stacy Rasgon - Sanford C. Bernstein & Co., Inc.: One question on the margin guidance. Looks a little lighter than in recent prior quarters when you were at similar levels within your current guidance. So I'd point you to maybe Q2 or Q3 2010 or even Q1 of '11. Just wondering if you can give me some feeling for what's different from Q4 versus those prior quarters? Is it only the utilization levels, is it mix, is it pricing, is there something else?

There's really nothing about price. Pricing has actually been improving. Mix maybe playing a factor in that, I'd have to go back and look at it. But I think the major difference is, we were in a cycle where we were building inventory on our balance sheet, or just collectively between the balance sheet of our balance sheet and our distributor's balance sheet. We're in the opposite situation this time, where we're looking to drop the aggregate inventory. And so utilization is down a little bit more than or meaningfully lower than where it had been at that point in time. So that's really the difference. Stacy Rasgon - Sanford C. Bernstein & Co., Inc.: That's helpful. And if I can ask a quick follow up. I know you said seasonality obviously is externally difficult. But if I were to just go to the exercise right now and roll out what I would view as typical seasonality on your Q4 guidance in the midpoint, I get for 2012 revenue growth, basically flat versus 2011. Do you think it's possible to get flat revenue growth next year versus this year? What sort of an economic environment would you think would be required potentially to see flat or maybe even -- flat revenue growth versus increase, versus declines for 2012?

Well, I think we'd have to see a better, or more stable economic environment. I think that it's always very dangerous to try to project future quarters based on 1 or 2 quarters of inventory builds. We were on -- before the world came unglued here, both on the supply side and potentially, on the demand side next quarter, we were on a pretty good revenue build up. So I think for us at least, trying to go through this sequential quarters and come up with a real estimate for next year is very, very difficult right now. I mean we wouldn't have predicted the kind of quarter-to-quarter build ups we saw last year in couple of quarters. So I just don't know enough to make a prediction. But the one thing that I'm pretty confident about is if we get a fair shake in the market, we can outgrow the market as we have and we could, it would reach as well, I think you got to get most of our competitors, given the product mix we have with the momentum we have with the large customers. So we're going to have to wait and see. We're in a process right now of trying to put together our 2012 plan. It's certainly not lacking opportunities, our products and technical people have gone through it, and we're just trying to avoid right now, either reacting too strongly or too weekly to very large vicissitudes of changes in demand in the short term, based on factors that are not necessarily long term. So as we get closer, when we look at Q4 and we see where that turn out, we look at the order rates, and we look at the demand pattern, I think as we close out the year, we'll have a much more informed view of what's going to be possible for 2012 . Stacy Rasgon - Sanford C. Bernstein & Co., Inc.: But if it's true that what we're seeing right now is primarily supply driven, and it turns out that the demand scenario was not terribly down, one, it would be reasonable to expect the revenue snap back at some point, once the supply issues are at work, is that correct?

Yes, I think the major angst that we have about Q4 is, I think I mentioned in the opening remarks, much more about what's going to happen with demand than what could happen on the supply issue. Although, I think the supply issue, will probably still linger a little bit longer. But certainly, at a modulated rate for our last quarter. But mostly, I'm not trying to predict what's going to happen in the macro sense. And in that sense, you're probably smarter about that than we are. Stacy Rasgon - Sanford C. Bernstein & Co., Inc.: Is it just the fact that you're getting very limited visibility from your customers that's basically driving the caution around the demand environment in Q4?

I think -- I keep yelling at Vince, and our sales guy, "Why can't you be more accurate?" And their response is the customers don't know what's going to happen. And so I think what happens in companies with all these uncertainty, the wild gyrations go on in the stock market, and all the forecast of economic, who knows what's going to happen. I just think, customers can't predict what's going to happen, and therefore, the purchasing groups try to keep the vendors honest and sort of keep -- they don't tell me what's going to be bad until it's bad. And we try to look at that and judge it. But I think what's really the case is the customers just don't know what's going to happen in the short term with their business. Therefore, it's very hard for us to one-step out of the food chain for that to come up with a very warm opinion of what's going to happen next quarter then we have a lot of confidence, there's too many variables. We, at Analog, we have a very broad product line. We serve so many customers in so many markets in so many geographies in a stable market, so the lower large number is really helpful. But 1 is up, and 1 is down and everything is sort of evens out. And we're generally, pretty close to where our expectations are. But right now, it's just -- there's too many things moving in too many directions to be precise about. I wish I could be and I'm sure you'd like us to be, but when we look at ourselves in the mirror, we just don't know.

And the next question is from Parker Paulin with Wells Fargo. Parker Paulin - Wells Fargo Securities, LLC: A couple of questions, you kind of hit on shades of them, but I was curious as to your operating margins long term this quarter, and the last couple quarters, you've been up in the 35-plus percent range. And it looks like next quarter, you're kind of guiding a little bit below that. Do you think there's a range that's sustainable for you?

Yes, I mean our sense, nothing that happened this quarter? We changed that view. We think with the mix of business we have, with the continuing pressure on the cost structure of the company, with continuing pricing power that we continue to enjoy in the market, we think that these kind of margins are quite stable going forward. And we think when the revenues are moving in the right direction, they can move above these lines. Parker Paulin - Wells Fargo Securities, LLC: And second one, you've kind of hit on the sort of future outlook and a little higher overview, but I was just curious if we might be able to get any additional color in terms of the industrial breakout this quarter?

Well, I think only what I said that the strength in the Industrial business was more of a factory automation, instrumentation side. The weakness seem to be more in the test equipment side, and we consider medical as part of the Industrial part of the business. But as I said earlier, it's not -- these aren't large differences, but they are minor differences but nevertheless, different.

And the next question is from Shawn Webster with Macquarie. Shawn Webster - Macquarie Research: So on the, I assume it was below 1 but was book-to-bill below 1 in the quarter?

Yes. But as I said earlier, I wouldn't think one thing or the other as a result of that. The inventories are being liquidated. So it's interesting but mostly irrelevant statistics. Shawn Webster - Macquarie Research: But we like to track those kind of things anyway.

I know you do, but we try to do but our predictability of using that as an indicator of our next quarter sales as we found out this quarter, when book-to-bill was well above 1 last quarter, at least for us, it's not very enlightening. Shawn Webster - Macquarie Research: Understood. And there's just a couple of smaller ones. Have you noticed any overall change in your mix in the last month or in the last few weeks where people are trying or buying the lower end SKUs? And then the other question was on the consumer area that was less than expected, what application area was that?

Well, we're not seeing any real differences. I mean customers buy what they're selling. And the product they have was selling, we said not that we have very many low-end products, but generally, I don't think there's anything that is noteworthy about the kind of products that people are buying. Our average selling prices, which were represented into the mix were relatively constant. So I don't think there's any -- anything really noteworthy on that. The second question, specific to consumer was it, Shawn? Yes, I think it's -- there's a broad range of consumer products that in second quarter, went down a lot of the -- we covered a little bit for Q3. The backlogs went up a little bit, so maybe we'll recover a little bit more in Q4 in line with normal seasonality, back-to-school, all that kind of stuff. But walk away and see how that happens, there wasn't any one particular application.

And the next question is from Romit Shah with Nomura. Romit Shah - Nomura Securities Co. Ltd.: Dave, accounting question for you. Utilization is coming down this quarter. I think you said into the low 70% range. Did that fully get reflected in gross margins? Or is it still in October because you have to sell the inventory?

Usually when the variance kind of go negative, that in generally it just goes right through the P&L. Romit Shah - Nomura Securities Co. Ltd.: So is it fair to say that if October is the bottom for revenues, that it's also probably the bottom for gross margin?

Yes. Obviously, it depends on what the aggregate inventory levels are going to do in the following quarter. But if the following quarter, they stabilize or moving up because revenues increasing, then I think you could say that, that's the trough.

And the next question is from Vijay Rakesh with Sterne Agee. Vijay Rakesh - Sterne Agee & Leach Inc.: I'm just wondering, when you look at your inventory levels in-house, any 2 of your sheet that you need to -- working down a little bit? I know there's a couple of questions already on it, but I just wanted to get your thoughts there.

So the question is whether the inventory levels on our balance sheet need to come down, is that what the question is? Vijay Rakesh - Sterne Agee & Leach Inc.: Yes.

Yes, I think we always take a look at this in aggregate. We certainly had 110 days of inventory or at the kind of high end of our range. So we are over time, probably looking to bring those down more closer to 100 days. But we're just -- as a process in near term, you look at the aggregate inventory between what we have on our balance sheet, what the distributors have on their balance sheet, and we look to try to in aggregate, bring those down.

I think it's also true that, we in the past, have carried much larger inventory than that. And we rarely have write-downs for those inventories. Because particularly, the internal products we built have such long life cycle. And the reason I was trying to keep the inventories lower than the peak levels that we've had in the past, just for the reason of the first "question" that just got asked, we have found that it's much better for us to have a much more rapid snapback in the gross margins than try to preserve another point or so of gross margins by keeping the factories overloaded. And we really run the company around the lead times. So we're going to make sure that the lead times stay low and that's going to absorb the inventory rather than the other way around. Vijay Rakesh - Sterne Agee & Leach Inc.: Okay and on the industrial, sir, I know you mentioned, things are still looking pretty stable. What's your book-to-bill there as you look on? I know it's not been a good indicator, but what do you see the book-to-bill there on industrial side?

I don't have that data. We don't break it down by industry segment. I'm sorry we don't have that data.

And the next question is from John Pitzer with Credit Suisse. John Pitzer - Crédit Suisse AG: Jerry, you mentioned in your prepared comments, that you missed some revenue opportunity in the July quarter out of the COGS infrastructure business.

Yes. John Pitzer - Crédit Suisse AG: Component shortage of wafers. I'm kind of curious, how much was that and do you expect to make that back in the October quarter?

The first answer is simpler than the second one. The first answer was probably 40% of the revenue miss. And I think over time, you'll make that back and over time's what happens with the ultimate demand from those customers. But it was a fairly significant number. John Pitzer - Crédit Suisse AG: Jerry was that 40% of the low end of guide or to the midpoint?

To the midpoint.

Yes, to the midpoint. John Pitzer - Crédit Suisse AG: And then guys when you look at the midpoint of guidance for the October quarter, can you help me understand what normal linearity is for this quarter, and does the midpoint assume normal linearity? Or do you expect that you're not going to see what I would expect to be relatively stronger months in September and October?

Typically, I think Dave alluded to this earlier. We see August being relatively weak, particularly in Europe. And then we see a stronger September and a much longer October. That's typically the linearity of the quarter and that's the linearity that we're planning on for this quarter.

And the final question is from David Wu with Indaba Global Research. David Wu - Global Crown: Jerry, a quick question on geography. If I were to look at your business, Europe, Western Europe, United States and Japan, if you add up those 3 (sic) up, how much of that business would it be and correspondingly, what about those "merchant markets," how big are those in terms of your total revenue mix?

I will delegate that to David who has all the numbers.

It's David, I'm sorry. I missed what you said. What were the components of the one you wanted... David Wu - Global Crown: Well, U.S., Europe, Western Europe and Japan. Can you give any idea what percentage of the business that is? And if you look at the BRIC countries, the Brazil, Indias and Chinas, how big could that be?

Okay so basically about 50% -- if I mention this correctly, but 50% of our revenue came from the U.S. and Europe and the rest of North America. If you add Japan, that's another 13% and the rest of China and Asia Pac.

Okay. That concludes our Q&A session. We appreciate your participation and look forward to talking with all of you again during our Fourth Quarter 2011 Earnings Call scheduled for November 21 beginning at 5:00 p.m. Thanks very much.

And this concludes today's Analog Devices conference call. You may now disconnect.