Good morning, and welcome to the Analog Devices Third Quarter Fiscal Year 2016 Earnings Conference Call, which is being audio webcast via telephone and over the web. I'd like to now introduce your host for today's call, Mr. Ali Husain, Treasurer and Director of Investor Relations. Sir, the floor is yours.

All right. Thank you, Jennifer. Good morning, everyone. Thank you for joining the Analog Devices Third Quarter FY '16 Earnings Conference Call. You can find our press release, relating financial schedules and our investor toolkit, which includes additional information that we believe will be useful for investors, you can find that at investor.analog.com. As usual, I'm joined by ADI's CEO, Vincent Roche; and ADI's CFO, Dave Zinsner. And so before we start, let's get through some disclosures. Please note, the information we're about to discuss, including our objectives, outlook and the proposed acquisition of Linear Technology Corporation, includes forward-looking statements. Actual results may differ materially from these forward-looking statements as a result of various factors, including those discussed in our earnings release and our most recent 10-Q. These forward-looking statements reflect our opinion as of the date of this call, and we undertake no obligation to update these forward-looking statements in light of new information or future events. Our comments today will also include non-GAAP financial measures, which we have reconciled to their most directly comparable GAAP financial measures, in today's earnings release, which we've posted at investor.analog.com. And so with that, let's get started. So revenue in the third quarter totaled $870 million and exceeded our revised guidance. Revenue increased 12% sequentially and increased 1% from the prior year. Our B2B markets of industrial, automotive and communications infrastructure in the aggregate were slightly down sequentially, but grew 4% over the prior year. Now let's talk about our results by end market. The highly diverse industrial market represented 43% of revenue in the third quarter. All industrial subsectors were stable to up sequentially, in line with expectations. But the timing of customer orders in the aerospace and defense vertical led to a weaker-than-anticipated performance in this sector in the quarter. The automotive market at 15% of revenue decreased 2% sequentially in the seasonally slower July quarter, but importantly, returned to year-over-year growth, increasing 3%. We believe the headwinds from the passive safety market have largely abated. And we're, in fact, very excited about our prospects for automotive revenue growth going forward. Turning now to the communications infrastructure market. At 20% of revenue, sales to our hundreds of communications infrastructure customers were stable sequentially and grew 23% year-over-year. On a sequential basis, wireless infrastructure decreased, while wireline infrastructure applications revenue increased as customers continue to build out metro and inter-data center network infrastructure for 100-gig and 100-gig-plus optical networking. Turning now to the consumer market. The consumer market typically drives significant ROI and free cash flow for ADI. And this market represented 21% of total sales in the quarter, increasing 131% sequentially. The strong sequential performance was due to better-than-anticipated portable consumer application revenue. So now I'd like to turn the call back over to Dave for details of our financial performance in the third quarter of fiscal '16. With the exception of revenue and other expense, Dave's comments on our third quarter P&L line items will exclude special items, which, in the aggregate, totaled $28 million for the quarter. When comparing our third quarter performance to our historical performance, special items are also excluded from prior quarter and year-over-year results. And reconciliations of these non-GAAP measures to their comparable GAAP measures are included on Schedule E in today's earnings release. So with that, Dave, I'll turn it over to you.

Thanks, Ali, and good morning, everyone. The third quarter was a very good quarter for ADI, with revenue increasing to $870 million and diluted earnings per share growing to $0.82, with both results exceeding our revised guidance. Gross margin of 66% increased 20 basis points from the prior quarter as cost savings and lower spend in the fabs offset lower utilization rates and mix. Inventory, on a dollars basis, decreased $7 million sequentially and, on a days basis, decreased 16 days to 122 days. We're now expecting days of inventory to decline further in the fourth quarter and to be in the range of 110 to 115 days, in line with our model. Inventory and distribution channel on a dollars basis was modestly higher than in the prior quarter and, on a weeks basis, remained at 7 weeks, consistent with the prior quarter. Operating expenses increased 2% sequentially, lagging well behind the 12% sequential increase in revenue, as we continue to manage our expenses very tightly and gain operating leverage in our financial model. As a result, operating profit before tax of $296 million increased 24% sequentially. And as a percent of sales, operating profit before tax expanded 330 basis points to 34.1%. Other expense in the third quarter was approximately $12 million. Given our recently announced acquisition of Linear Tech and related financing costs, we expect that our net interest expense will be approximately $20 million in the fourth quarter and remain at that quarterly run rate until we close the transaction. Our third quarter tax rate was approximately 10% as we adjusted our full year tax rate down slightly to 12%. Excluding special items, our business delivered strong operating leverage, with diluted earnings per share of $0.82 increasing 28% sequentially on a 12% increase in revenue. Diluted EPS increased 6% over the prior year. At the end of the third quarter, our cash and short-term investment balance was $3.8 billion, with $860 million available domestically. We had approximately $1.8 billion in debt outstanding, which resulted in a net cash position of $2 billion. Our business strategy and consistent financial execution enable strong free cash flow generation, which supports investments in our business and the return of cash to shareholders. Excluding a onetime item, over the past 12 months, ADI has generated $1.1 billion of free cash flow, effectively converting each dollar of revenue into $0.32 of free cash flow, at the very high end of our free cash flow model range. In the third quarter alone, free cash flow margins expanded 600 basis points as compared to the prior year. In terms of cash returns to shareholders, over the past 12 months, we have returned approximately $1 billion to shareholders through dividends and share repurchases, which represents a 90% free cash flow payout. I want to now take a minute to talk about our capital allocation philosophy in light of the recently announced Linear Tech acquisition. As we mentioned when we announced the deal, the combined companies' pro forma free cash flow on a trailing 12-month basis ending April 2016 would have increased from $1 billion to $1.7 billion. After the deal closes, we plan to use our combined cash generation to rapidly pay down the debt associated with the transaction. As a result, we anticipate our net debt to EBITDA to go from 3.8x at deal close to approximately 2x net debt to EBITDA within 3 years of the transaction closing, which translates into an approximate $1 billion per year expected debt paydown schedule. In order to facilitate this rapid deleveraging, we have suspended our share repurchase program. That said, the dividend remains a cornerstone of our capital allocation philosophy, and we intend to maintain our dividend policy. So in summary, this was a solid quarter on several fronts. We executed well in our business. And the diversity of our customers, applications and markets, coupled with the sustainability of our innovation, enabled both revenue and diluted earnings per share to exceed our revised guidance. We're also very excited about the acquisition of Linear Tech, which we announced during the quarter. And I'll invite Vince to come on and say a few words in a minute. Now turning to our outlook and expectations for the fourth quarter, which, with the exception of revenue expectations, is on a non-GAAP basis and excludes special items that are outlined in today's release. We're planning for another quarter of sequential revenue growth in the fourth quarter. In the B2B markets of industrial, automotive and communications infrastructure, we are planning for aggregate demand to remain stable sequentially and, on a year-over-year basis, to increase in the low to mid-single digits. In the consumer market, strong customer demand and increasing dollar content in portable applications leads us to plan for continued sequential growth in this market. In total, we're planning for revenue in the fourth quarter to grow sequentially and be in the range of $910 million to $970 million. We expect factory utilization in the fourth quarter to be similar to its third quarter level as we manage our days of inventory. And so we are planning for gross margins in the fourth quarter to decrease approximately 50 basis points to 65.5% on the expected mix of business. We are planning for operating expenses in the fourth quarter to increase slightly sequentially but to significantly lag our expected sequential revenue growth in the fourth quarter and for operating margins to expand from their third quarter levels. Based on these estimates and excluding any special items, diluted earnings per share are planned to be in the range of $0.84 to $0.94. Now before we move on to Q&A, I'd like to invite Vince to say a few words about the recently announced Linear Tech combination. Vince?

Great. Thanks, Dave. Well, as you know, late last month, we announced an agreement to acquire Linear Technology Corporation. This is a transformative acquisition that brings together the 2 best franchises in the analog industry and, once we combine our highly complementary portfolios, will make us a market leader across all major analog product categories. Following last month's announcement, I have personally heard from many customers, from employees and shareholders, and the response has been overwhelmingly positive. Our customers are excited to gain access to a comprehensive portfolio of the best brands in high-performance analog, the industry's best design engineers and FAE support and the best-in-class supply chain all under one roof and with our continued commitment to the long-term support of our customers. Our employees as well are very excited by the opportunities created by combining our 2 complementary suites of high-performance analog products and technologies. Beyond that, both companies have long admired the technical expertise and acumen of the other. And our teams are looking forward to the collaboration and innovation possibilities when combining 2 of the best engineering teams on the planet. ADI and Linear are 2 amazing companies with very storied histories and vibrant cultures, and we plan to take the best of both companies to create something much greater than the sum of the parts. We have many ties that bind us. We both believe that innovation and the passion for our customer success drive superior business results. And we share an intense focus on operational excellence across quality, reliability, supply chain and, of course, financial returns. As a result of this combination, our financial profile is expected to be among the best in the industry with strong margins and free cash flow, which we expect will increase over time as we realize the financial synergies and cross-selling opportunities inherent in this transaction. And as Dave mentioned, ADI's anticipated free cash flow generation is expected to increase significantly from current levels. We believe that this combination is good for all of our stakeholders. For customers, it will create a true innovation and support partner that is unmatched in the industry. For employees, it will create a tremendous opportunity for professional growth and the ability to help redefine an industry. And for shareholders, this acquisition will further diversify our end-market exposure and strengthen our business and financial profile. Notably, we expect this transaction to be immediately accretive to earnings and free cash flow and anticipate non-GAAP EPS accretion of 10% right out of the gates. There is no other team of people out there who could accomplish what we believe Analog and Linear will accomplish together. And I'm very excited to get started on the next phase of our journey together. And so with that, we'll now start taking your questions.

All right. Great. Thanks, Vince. [Operator Instructions] So we plan to run the call until 11:00, and so I think that's plenty of time to get to everyone's questions. So with that, operator, let's start the Q&A session. Folks on the line can ask questions to either myself, Vince or Dave.

[Operator Instructions] Our first question comes from Ambrish Srivastava with BMO Capital Markets.

I had a quick clarification and then my question. Clarification. Dave, you mentioned on the dividend policy, you have been raising dividend consistently for as long as I can remember. You did mean to imply that you would be raising dividend consistently like you have in the past. And then my question on autos. Good to see the headwind from MEMS kind of abating. What are the areas that you are excited about as you alluded to that you should expect to see growth in that segment?

Okay. I'll take the dividend question, and I'll let Vince comment on the areas of automotive that we're excited about. On the dividend policy, as you know, our model is to grow our dividend over time at a rate of 5% to 10%, and that continues to be our model.

Yes. So okay, on the automotive side, we play in 3, I would say, premier spaces where innovation really matters. We play in powertrain. And there, for example, we have new sensor technology. We have an ongoing stream of growth in the battery management area. And we have new modality switches, AMR, for example, managing -- or measuring very, very accurately, sensing -- measuring torque, for example, which is an important modality in the car. Also, our audio infotainment solutions are becoming more and more adopted across many, many platforms across the OEMs in the global market. Now for example, recently, we saw that -- you probably saw Ford announce our -- we've talked to you before about this A2B bus, a very, very efficient, high-integrity bus that's being used in the car to move media -- audio media. Ford just announced, with our brand, the inclusion of that technology in 2 of their particular car models. We have talked before as well about the growth of ADAS. We have a very strong position in 24-gigahertz radar solutions, microwave to bits. And we're starting to move with some very attractive solutions as well in the 77-gigahertz radar area. So I think we have a good spread of technologies across the various car platforms, using our underlying strength in sensing, measuring and interpreting in both the precision signal processing area as well as the very, very high-speed signal processing area.

Great. Thanks, Vince, and thanks, Ambrish, for the question. I think, Ambrish, you do highlight a good point, which is if you actually look at our automotive business, excluding the passive safety area, we've actually grown that business in the high single digits year-over-year in the quarter. And I think that really speaks to the additional content that we're getting into vehicles now, as Vince mentioned, and that we're really excited about going forward as well. So thanks for the question.

Your next question comes from Tore Svanberg with Stifel.

So my question is on the consumer business, so up 130% sequentially. Can you just talk about the dynamics there, how we should think about that business here in the back half of the year? Clearly, a very volatile business. But yes, if there's anything you can add on the actual trends in the second half, that'd be great.

So Tore, you mean trends in terms of how it's going to do next quarter, you mean?

Well, just obviously, 130% is not the actual rate growth of that business. So how should we think about the volatility?

Yes. I would say in the fourth quarter, it's certainly going to be up again. That's going to be the driver of the sequential growth, probably in high-20s, low-30s percent sequentially. Then the next quarter -- last year, we declined about 60%, I think, sequentially, but that was -- partially, it's due obviously to seasonality. And then the other part of it is that there was a build of inventory last year at the end of fourth quarter, and we had that kind of consumption of that inventory in the channel that affected demand for us. This year, I think we have a closer linkage between supply and demand here on the consumer side. And so I would expect us to decline seasonally in the first quarter but only seasonally. I don't think we would have this kind of ramp-down due to over-inventory -- overbuild in the inventory side of things in the supply chain. So it's probably going to be roughly half the rate of what we saw last year sequentially.

Yes. I think the way to look at this market overall, Tore, we take a long-term view to the consumer market, like we do to all the markets in which we participate. So we're picking out -- with our customers, we're picking the hardest problems to solve. We're pointing our technology at these problems, and we look for areas where we can get sustainability from generation to generation. So we take a long-term view, and then the market will do what the market does in terms of gyration. But I think in the areas that we're playing, we're executing well, and we've got some very, very exciting technologies in the pipeline as well for the future here.

Yes, great. Thanks, Tore. That was a great question. And then I'd just point out, as I think I mentioned in the prepared remarks, that business for ADI drives a very strong ROI, a very strong free cash flow business for the company. And if you note that certainly consumer grew 131% or so sequentially, the operating margins for the company also expanded -- for the entire company, expanded well over 300 basis points as a result. So a great business to be in if you pick your spot.

Your next question comes from Tristan Gerra with Baird.

Just a quick follow-up on the consumer question. You've talked about some content increase. Can you quantify this sort of a mid-single-digit content increase relative to what you had last year?

It's about 30%.

Your next question comes from Craig Hettenbach with Morgan Stanley.

As you work towards the Linear Tech deal, can you just give us an update on just the Hittite integration, kind of how it's going versus initial expectations a couple of years ago, and then also just from a cross-selling perspective, how that's performed and the opportunities that you have?

Okay. So I'll talk about it from an operational standpoint, and then Vince can talk big picture about how it's gone. Just operationally, I would say we're pretty much fully integrated. We had expectations to get synergies that would drive the kind of accretion up into the kind of high teens. And that actually -- we've actually been successful with that. In fact, we're actually a little bit ahead of where we thought we would be from an expense perspective. From a revenue pipeline perspective, we have seen a lot of activity in terms of design-ins, in some case, design wins where we have been either able to take products that Hittite sold and bring them into our customer base or actually vice versa. For example, in the case of the military business, they have actually been able to bring ADI parts into their customer base. And that's going quite well. I would say that's exceeding our expectations. I wouldn't say that it's shown up significantly on the revenue line just yet, nor do we expect it to. This is -- these are markets that have long design levels. But from everything we can tell, just looking at how the activity has transpired from the time we closed until to where we are today, we think we're ahead of where we thought we would be. I don't know if you have anything to add.

Yes, that's good color, Dave. I think we're approaching the LTC combination very much as we did with Hittite. We -- I think with both Hittite and LTC, we share the same values essentially. We're very innovation-centered with very, very high standards in terms of how we execute in supply chain, quality and financial returns. And that's not negotiable. That's what we strive for in these combinations. Obviously, the cultures are different, but I view the cultural diversity as an opportunity to improve both companies. There -- when you get world-class companies who have been doing things very, very well as they were independently, you have got to listen very, very carefully to and understand what each side has been doing and do your best to combine the entities to create something greater than the sum of the parts. We did that with Hittite. We -- and that's the approach we're taking as well with LTC. And when I look at the combination of Hittite with ADI, for example, with our customers in communications infrastructure, broad-based communications activity, in the instrumentation, the aerospace and defense areas, it's really exciting to see how we're now solving big problems from end to end. We are -- we've got unique capabilities. I think we are probably the only high-performance microwave-to-bit supplier out there that can run the gamut of technologies and solve big-footprint radio problems for our customers. So I think, obviously, with LTC, we get the real strength that they bring in the power area and some in the mixed signal areas and in the little niches. So my sense is we will take the very same approach as we did with Hittite. We've learned a lot as well through the process. And we will, as I said, listen very, very carefully to making sure that we understand the best practices and that we use them across technology, product development, supply chain, quality and customer support, of course.

Your next question comes from Chris Danely with Citigroup.

So if we incorporate your guidance for the individual product segments for the fiscal Q4 for fiscal '16, I think comm, industrial and auto are all essentially flat. So what sort of growth would we expect for those 3 segments? And you can just do relative, if you want, for fiscal '17. And then how much would consumer be up -- would be expected to be up for fiscal '17?

Difficult to say at this point how all this stuff is going to transpire. We actually haven't done our plan -- our annual operating plan for 2017 yet, which is due to happen in the next couple of months. I would say that our expectation is that the industrial market grows normally in kind of the mid-single digits, kind of GDP plus a little. So I think that's kind of how we're building it. Whether that happens in '17 probably has more to do with how the macro does than anything. But I think it's a good rule of thumb to think about that growing in those kind of rates. Automotive, I think, over time, should be back into the levels that Ali talked about at the subsegments, which is to grow in the high single digits. It's been weighed down a bit, obviously, by this passive safety business kind of coming off. And -- but that's kind of running its course. It's ceased to be that the driver for automotive is to stay flat. It's still going to be a little bit of a headwind, although a smaller headwind into next year. But I think automotive has a chance to start to move. I think it grew a few percent or will have grown a few percent this year, probably grows mid-single digits next year and probably goes up to the high single digits the following year given all of the exciting opportunities we have that Vince talked about. In the comms space, it's anybody's guess, I think. Over time, we think that our technology, which is ahead of competitors, will allow us to drive share gains in that market. And so even if the market itself, the CapEx environment or the comm infrastructure market is kind of really low single-digit CapEx increases year-over-year, we think we will grow faster than that because of our position in that marketplace. And then the consumer market, obviously, it was down -- or should be down, most likely, year-over-year this year as we won't have the same inventory build we had last year, which kind of hit us this year. But I think next year has an opportunity to have a pretty decent year because this year was actually weighed down by the fact that they were digesting inventory in the first half of the year. Next year, that won't be the case. On top of that, we'll get the full year effect of the dollar-content improvements in the -- that we got this -- at the end of this year. And so we're cautiously optimistic about the consumer business having a decent year next year.

And your next question is from Craig Ellis with B. Riley.

So Dave, I was hoping you could just comment on the ends of the outlook range on revenues. Is the gap between the low end and the high end just allowing for a still uncertain macro? Or is it related to allowances in any of the segments for different types of build plan assumptions? And any color on what would swing things to the low end or high end would be greatly appreciated.

Yes. Good question, Craig. A part of it is the fact that consumer tends to have a little bit of uncertainty built in. We come in with quite a bit of backlog. But sometimes that backlog can shift around towards the end of the quarter a little bit, and that can affect the quarter number, even though it doesn't affect kind of the full build plan over time. The other piece was you just have to build a little bit of cushion in for kind of a macro uncertainty that might hit us at some point. We don't expect that, which is why kind of the middle of the range is a pretty decent increase. But we did build in some cushion, just in case something kind of surprised us. But I would tell you that we come in, in a very good position from a backlog perspective. And so although we gave a wide range, we feel pretty good about them hitting the middle part of that range. And if things go better than that, we could hit the higher end of the range.

Your next question comes from Amit Daryanani with RBC.

So just a question on the industrial side. Sounds like part of the year-over-year decline was driven by this aerospace and defense orders getting pushed out and the timing getting pushed out. Could you just talk about what sort of revenue did you end up missing in July quarter because of that? And is it logical to assume that you'd pick this back up in the October quarter and you could see better growth in the industrial segment in that case?

Yes. So the industrial weakness was really -- as Ali actually mentioned, it was really specific to the aerospace and defense. That's programmatic. Sometimes in certain particular quarters, they may not take as much as we have forecasted just by the timing of the programs. We do expect that to resume in the fourth quarter, come back in the fourth quarter. And that was really the most significant impact. We didn't really expect industrial to have significant improvement sequentially. So it's not altogether surprising that we were down $10 million, but it was in that kind of range that -- where the miss occurred. On the automotive side, I would say we kind of hit where we thought we would. We thought we would be down around 3%. I think we're down sequentially down 2%. So we did, actually, marginally better than we expected in the automotive space. So that's going, I would say, better than expected.

Yes. And let me just give you a little color on the industrial segment, if I can, Amit. I mean, really, everything within the industrial space performed as we'd expected. Everything was stable to slightly up sequentially. Let me give you a little more color then. In North America, we had a good quarter in factory automation. We believe that's driven by stabilization in the oil and gas space. In China, renewable energy did particularly well. And as Dave mentioned, the aerospace and defense area was -- hit a bit of an air pocket this quarter. But I think if you look at it on a trailing 12-month basis, that business has actually done very, very well for ADI. And really, the acquisition of Hittite has really, as Vince mentioned earlier, reinvigorated that business for us. We've got a guy who's running that business, who's doing an amazing job with what I think is a pretty expansive portfolio in that area. So we think A&D is actually a growth market for us going forward. And there -- in there, the customers are really looking at these old mechanical systems that are expensive. And they're looking to replace them with higher performance, cheaper silicon solutions, and that really increases our content meaningfully in those systems over time. So I think, looking at any of these markets in a quarter, particularly in lumpy markets, can be fraught with peril. I think, if you take a longer-term view, I think these markets are doing pretty nicely for ADI. So well, appreciate the question.

Your next question is from Stacy Rasgon with Bernstein Research.

I guess in the current quarter, and you're mentioning about $10 million offset from the aero, but you had originally guided the B2B business up in the mid- to upper single digits. $10 million differential still wouldn't quite get you there. So I'm wondering what other areas in the quarter were potentially weaker than you thought. And I was also hoping if you could give us a little more color on a segment basis for what you expect for next quarter beyond just the aggregate platform [ph].

Right. Well, the other area that was a little less than planned was the communications market. It declined about 1%, I think, sequentially. We expected that business to be up this quarter. I would say that was customer-specific. There was one particular customer that did quite a bit weaker than expected.

On the wireless side.

On the wireless side. And there was some color around India, pushing out some of their infrastructure build-outs that may have contributed to that. That was the other area that surprised us. And then your other part of your question, Stacy, is how I expect the end markets to play out in the fourth quarter. I would think that -- we mentioned B2B was likely to be flat. I think the combination of industrial and auto is likely to be up a bit, and I think communications might be marginally weaker.

Your next question comes from Blayne Curtis with Barclays.

Dave, you guided interest income up throughout -- until the close of the deal. Could just talk about what debt you're adding and at what interest rate? And does that come off the $7.3 billion that you're planning on raising to acquire Linear?

Yes. It's really just the -- so when we executed the agreement with Linear Tech to purchase Linear, we had to enter into an underwriting commitment with a set of banks to provide -- so that the funding was essentially guaranteed. We haven't drawn any of the money, but banks don't agree to do that without you agreeing to pay them something. So the step-up from what was about $12 million a quarter up to what is going to be around $20 million, give or take, is really that cost of them providing that commitment, even though we haven't borrowed anything. That then goes away once we enter into the agreement with -- or rather, close the deal with Linear Tech. And then there'll be a new financing cost, obviously, which is actually the drawn down amount, which, as I indicated, was going to be around 3% pretax on what will start out being $11 billion but quickly paid down to about $7 billion, $7.5 billion.

Your next question is from Ross Seymore with Deutsche Bank.

Just want to ask a question on the communications area. That -- in past calls, you've been pretty bullish about the expectations there. I know you talked about the wireless being weak in both the quarter, and it seems like even in the guide you're talking comms being a little bit weaker. Can you talk about any confidence or what level of confidence you have in that communications segment growing going forward?

Yes, it's a good question. So we look at the comms infrastructure market, in general, as it's a very important market for ADI. And as always, we take a long-term view to how we invest, how we pick our spots and how we invest there. So we're solving radio problems for our customers, I believe, with the level of completeness that is quite unique. And with the addition of Hittite to our portfolio, we're very well positioned in microwave to bits. And of course, with the addition of the Linear portfolio, we're able to attach the high-performance power products, which will enable us to even offer more complete solutions to our customers. So I think the way to look at this market, whatever happens with the short-term gyrations, the challenges that our customers are facing are really immense. The problems are getting harder and harder from generation to generation. They're trying to solve the ongoing problem, the spectral efficiency, information integrity, power efficiency, and those problems will persist. And we're in a better position than ever to solve these problems. So the markets are going to gyrate. It's very, very hard to predict. It's quite a lumpy business, as we always say. It's hard to predict quarter-to-quarter what's going to happen. But we view the whole comms infrastructure area as really the electricity of the modern economy. And the things that are under our control, how we innovate, how we engage with our customers, we're doing better there than ever. We continue to make improvements and I believe we're poised to take share. So whatever the market does, we're poised to take share as the years move on here. So I think that's the way to view communications infrastructure.

Your next question comes from Harlan Sur with JPMorgan.

So within your broad-based industrial business, can you just talk about the geographical dimensions you saw in Q3? I know you touched upon some specific product drivers in certain geographies, but maybe just touch upon sort of the broad geographical trends, particularly China since I think your industrial business in China has been a strong driver over the last couple of quarters. And then maybe touch upon what's implied within the fourth quarter industrial guidance, again, from a geographical perspective.

Sure. Good question, Harlan. Let me take that one. Okay, so by region, I'd say North America and Europe were a little bit weaker sequentially. And as I mentioned earlier, even though factory automation was quite strong in North America, our A&D business tends to be more focused in North America. And so as a result of that being weak, North America being a weaker region for us in the industrial space. China was very strong. Again, as you mentioned, it's a key area for us in the industrial space. That was strong on instrumentation applications, Smart City and energy-type applications. Then as I mentioned earlier, in North America, factory automation was pretty strong on stable oil and gas. As we look forward to the fourth quarter, it's actually an interesting question that you posed because, generally speaking, the fourth quarter for industrial tends to be down in the mid-single digits. This time, we're expecting industrial to be pretty stable to the third quarter level. And there's a few reasons for that, why we're feeling, I guess, relatively bullish on that market in the next quarter. The aerospace and defense sector, we expect to come back a little bit in the following quarter. And frankly, if you look at the orders in distribution, they're currently pretty strong. And I think if you compare that to some of the outlooks painted by some of the larger distributors out there, their book-to-bills are trending at parity or above parity, so that would support the strong flows we're seeing in distribution. So as a result, I think when you package up all those disparate points, we come up with a view that next quarter, the industrial market should be pretty stable to its third quarter levels here. So hopefully that answered the question.

Your next question comes from Cody Acree with Drexel Hamilton.

With the Linear acquisition, what are your long-term thoughts on your capacity needs and how that might impact margins?

Well, we'll have 4 fabs on a combined basis, and so we'll have plenty of capacity for the future demand of the business. We've had utilization down this quarter, expected to be down next quarter, probably it'd be down again in the first -- at this level, in the first quarter again. And then it steps up a bit. Their utilization is actually pretty good. So I think that, for the foreseeable future, I think we feel pretty good about what our capacity looks like.

Yes. I think job #1, when you think about fabs and foundry, job #1 is to make sure that across the huge breadth of SKUs that we've got that are very, very important to, particularly, our industrial and B2B customers, job #1 is to make sure we have no supply chain disruptions whatsoever. We both -- both LTC and ADI have -- we got very, very high scores for being able to supply a huge diversity of products over very, very long periods of time. That's a tremendous value to our customers. So job #1 is to make sure that we don't diminish that value in any way. And as Dave said, we manage utilizations on a dynamic basis to make sure that we match supply and demand, and that will continue to be the way.

Yes, and I think it's worthy of mentioning here. This transaction is to better serve our customers, so let's not lose sight of that.

Your next question comes from David Wong with Wells Fargo.

Can you give us some idea in the longer run how 5G might affect your content opportunity in comms infrastructure? Is there any additional opportunity or are the systems is essentially the same?

Well, the -- apparently, the demand for spectral efficiency is going to increase several orders of magnitude. And one of the methods that we're going to use to get there, obviously, the bandwidth has got to increase, but the -- we're going to be moving well into the microwave area. So the complexity of the problem is going to significantly increase in terms of all the things that we've been talking about, in terms of spectral efficiency, power management, power efficiency, obviously, cost per bit and so on and so forth. So with each successive generation, there has been more pressure on the technology to deliver ever-increasing levels of, as our customers would say, productivity, innovation productivity. So our belief, David, is that we're looking at orders of magnitude of complexity increase, which will continue to put pressure on our technology. But that's in our wheelhouse. That's what we like. We like hard problems to solve. That's what we build our business on.

Your next question comes from John Pitzer with Credit Suisse.

Dave, I wanted to go back to the consumer business. If I look at a year-over-year compare, July quarter, consumer was down about 10%. The midpoint of your guidance is down close to 20% year-over-year, and notwithstanding sort of the inventory issues last year, I would have thought the July quarter would have been a more difficult compare quarter, because my understanding was that July last year benefited from builds beginning early in the quarter, throughout the quarter. And this year, the July quarter really only benefited from the month of July build for handsets. And so I'm kind of -- hoping you can kind of help circle -- or square the circle there for me as to why year-over-year growth would be so much worse in the October quarter than the July quarter in the consumer business.

Yes, I mean, simply put, John, we just had an inventory build that was pretty significant in the fourth quarter, and we do not expect hopefully to have that happen this time around. It'll be more closely aligned with demand. I would say that we do have a range, and as you get to the higher end of the range, that would suggest a lower or a, I guess, a lower year-over-year decline, yes, I guess, would be the way to describe it. So that's obviously a possibility, but not what we've built into the plan or the midpoint in the forecast.

And Dave, did the July quarter only benefit from builds in the month of July, or did builds happen earlier in July quarter than we thought -- or than you initially thought on the last conference call?

No, it was definitely more of a July ramp in the third quarter. I would say that probably on a weekly basis, it was probably at a higher level than it was last year on a direct compare of the months of July for this year and last year.

Your next question comes from William Stein with SunTrust.

A quick one around the Linear acquisition. First, can you remind us of the timing -- expected timing to close? And Dave, can you also sort of relate your early experiences coming to ADI and then also your experiences working to help integrate Hittite? And maybe string a narrative as to the types of things we should expect to hear around integration when that begins.

Okay. I'll let Ali talk about the timing piece.

So yes. No, I realize that question is top of mind regarding timing, but we're not going to comment on the regulatory approval process at this stage. You'll see the conditions to the closing of the transaction, including required regulatory filings, they're all going to be in the Form S-4 registration statement and the proxy statement that ADI and Linear will be filing in connection with the merger in the upcoming weeks. So that takes care of the timing, Dave.

Good lawyered-up comment, Ali. Okay. So on the integration side, I would say -- obviously, this is going to be different. It's bigger. It's on a different coast, so it's not quite as -- it's not in our backyard. So we have that aspect to things. But I would say, fundamentally, it's going to be similar. We -- what I think we do is we buy really good companies, and really good companies don't need to be fixed. And so what we try to do is take the best aspects of each company and leverage them in the combined company to make something better than the sum of the parts. So that's really what we intend to do. We're just in the initial planning stages as we speak. We'll probably have a more formalized plan as we work with our compatriots over there at Linear Tech to help form a good integration plan together. And I think that will take the better part of the rest of our fiscal year to really kind of come to conclusion on. And then once we do have, I think, a more clear plan, we'll definitely communicate that to investors and to analysts. But at the moment, I think just our fundamental premise is take the best of both companies and make a better company is really how it's going to -- the main ethos of the integration. I think it's going to go well. I think we did a great job at Hittite doing those same things. And every integration is different, but I think the elements of that process are pretty much going to be the way we approach it this time. And so I suspect it's going to be a really great combination. Just the early reads from every customer we've heard from, our employees as we've been able to talk clearly about -- to the Linear Tech, we haven't got to every Linear Tech employee yet, but the ones we have talked to, I think they get the excitement of what this could mean. And so I think it's going to be a tremendous combination.

Your next question comes from Steve Smigie with Raymond James. J. Steven Smigie: Great. Vince, I was hoping you could maybe give a high-level strategy comment on ADI. Obviously, you've been very strong over the years in analog-to-digital converters, good amplifier portfolio with Linear adding, as you mentioned, fantastic power. And so it seems you've got pretty much the soup-to-nuts, great stuff on Analog, as we think about increasing IoT applications out there, which, traditionally, hasn't been a big market for you guys, but -- so we think about that starting to invest more in digital makes sense, maybe ramping up investment in DSP, just curious your high-level thoughts on where you go after you've got the complete Analog portfolio here.

Yes, great question. Good question, Steve. So yes, we view the IoT, it's the kind of latest marketing buzz in the world of semiconductors today. But we view IoT as really an extension of the things we already do. So there's a need for precise sensing, precise signal conditioning and conversion at ultra-low power levels. And there's -- our customers are asking us for -- to be able to take some of the bits we generate and develop information to interpret the bits and give them information, which we do in areas, for example, like reliable health care monitoring. So I think the way to view it is we've got a platform of technologies that we apply to industrial applications, take industrial automation, for example. So we've got the conversion technology, signal conditioning, amplification. We've got processing both on the DSP side. We've fixed-function processing that we develop. We're quite a larger user of ARM technologies, for example. A lot of our products now use MCUs, very, very low-power MCUs which we tailor for our applications. We've the RF technologies that we can bring to bear for the connectivity. And obviously, power management is a core part of the overall solution as well. So the underlying foundation of silicon technologies will be supplemented over time with more algorithmic technology. And Lyric, for example, that we acquired several years ago, is a key player in enabling us to bring algorithmic technology to bear. We're looking at how we make each -- anything that gets connected needs security. So as connectivity in the IoT sector is synonymous, it needs security. So that's something that we're actually experimenting with. We're looking at possibilities to acquire some technology there as well. So that's -- what I've described to you is we've got a very, very broad base of technologies that are enabling ADI in our traditional markets, these more connected or IoT markets, where sensing, measuring and interpreting is very, very important. And we're looking for tuck-in technologies and organic developments to move ADI further up the stack, for example, into the interpretation using algorithmic technology as well as security and communications. So hopefully that helps you.

Your next question comes from Vivek Arya with Bank of America.

This is Shankar on behalf of Vivek. A lot of good questions were asked about the segments, but I just want to ask about the OpEx side of things. You just mentioned having a tight OpEx control right now. In Q3 and Q4, you just guided to flat to up. But given Linear deal, are you going to be focused on keeping the OpEx at current levels until the deal close? Could you just talk about the trends from Q4 to middle of next year? And then how you think about the business long term?

Okay. So I think when history is written on 2016, we will have been roughly flat year-over-year in OpEx. So I think I concur with you, that's pretty good OpEx control. I think our goal is really to be largely flat next year at the ADI level. And what we'll do is, in certain cases, reprioritize our investments into areas that we're more confident around the growth levels and shift things around as appropriate and not seek to add a lot of resources, particularly as we're going to get a whole bunch of resources hopefully by the middle of next year in the form of Linear Tech employees. So that's kind of the goal. It likely means that OpEx normally comes down in the first quarter just because the revenue comes down and then it pops back up in the second quarter if revenue is kind of seasonal. But kind of roughly in these kind of zip codes, plus or minus $10 million from where we are today.

Needless to say, we're operating as 2 independent businesses until we close. So we're, all the time -- we're very opportunity-rich as a company and we're all the time looking to pick the best opportunities, make sure they're properly funded. And we're always looking for talent. So within the boundaries of an OpEx model that is spending 18% or 19% in R&D, that's what we intend to do and scale it with revenue growth over time.

Your next question comes from Romit Shah with Nomura.

This is Krysten Sciacca for Romit. Just to go back to the consumer segment for a little bit. How did your consumer business outside of your largest North American handset customer perform?

Yes, I can take that one. It -- I would tell you, as we enter sort of the back half of the year for ADI, the consumer business has some positive seasonality. And so it actually performed quite nicely on a sequential basis and was about stable to the prior year. So hopefully, that's helpful.

Your next question is from Ian Ing with MKM Partners.

I believe at one point, you gave a full year CapEx target of $140 million to $150 million. You're running below that. Is that because of the Linear deal perhaps getting access to some equipment and factory output and maybe some spending you won't need here?

No, we just generally set a budget that we're going to spend at 4% of revenue. And I think coming into the year, we thought -- we didn't suspect this air pocket we'd run into on the consumer side, and so we had a higher expectation on CapEx. But given that the revenue was a bit lower, we lowered the CapEx so we could maintain the 4%.

Yes. And so that new number is somewhere in the range of $130 million to $135 million for the year.

Your next question comes from Stephen Chin with UBS.

Just given some of the color earlier on some of the growth in your wired infrastructure business because it's the 100-gig optical, I was wondering if you could provide some more color on whether that's primarily driven by hyper-scale data center customers or if there's some telco carrier CapEx driving that as well. And related to that is, looking forward, is that pretty much running in line with demand or is there some big element of capacity build ahead or buildout for consumption later on this year?

Yes, good question. So it's driven by demand. I think there's a very, very good balance between what we're seeing in terms of demand and supply. There's obviously a huge amount of activity in the inter-data center connectivity. And we're participating in that with our customers, also long haul and kind of metro buildouts. And I think there's a good balance between the 3. But it seems that the data center is hotter at this point in time, and looks like it will be a wave for several years to come. So I think it's a good mix and very good balance between demand and supply here.

Your next question comes from C.J. Muse with Evercore.

I guess, a quick question around the Linear merger. Curious what kind of conversations, if any, you've had in terms of walking up talent there. And as you think about your compensation plan versus theirs, what are the implications to OpEx going forward?

We're operating as 2 separate companies until we close. And obviously, when you look at both companies actually, we've had tremendous -- we've got tremendously long tenure in both companies, and the attrition rates run very, very low in both companies. And I expect that to be what it will -- that will maintain its pace for many, many years to come. People remain with these companies because we do exciting things. We solve big, big hard problems. We've got very strong cultures. And I believe that just as it was so with Hittite and ADI, it is our goal to make sure that we win the hearts and minds of all of our engineers who really create the value for both companies. And I'm very confident about that based on the conversations I've so far had with LTC leadership. And I see that as being a tremendous value and strength of both companies.

I would say that, from an OpEx management perspective, the -- we run in this -- into this every time we integrate a company. There are always slight differences in terms of how the compensation works. And I think we're pretty good at figuring out a way that we can do it that works for employees and keeps them energized and engaged and simultaneously doesn't have an impact on our total OpEx and our ability to manage our OpEx appropriately. So we haven't worked out the particulars of that. That will also be done over the coming months. But I feel pretty confident that we'll be able to address employees' concerns and shareholders' concerns and come up with something that's optimal.

And our final question comes from Toshiya Hari with Goldman Sachs.

I was hoping you could talk a little bit about your content win in consumer, where you're seeing the design wins, how fast is content this year growing relative to last year and how sustainable is that rate of growth going into next year?

Well, as I said, it's -- the content increase is 30%. We can't get into the details. We have confidentiality requirements with our customers that don't allow us to go into any more detail other than that.

The wins are consistent with our stated strategy. We play in really, really high-quality problem areas in the user experience. And the wins we've had are very, very consistent with that stated strategy.

Okay, great. Well, that was the last question. So as a reminder, our fourth quarter and fiscal '16 results will be issued on Wednesday, November 22 at 8 a.m. Eastern and the earnings call will begin 2 hours later at 10 a.m. Eastern. So that's it from us from Norwood, Massachusetts. And so thanks for joining us this morning. We'll talk to you soon.

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