Hybrid manufacturing model for better growth and factory utilisation? Analog Devices announces investment in it, aiming for 70% revenue growth by 2025.
US-based chip designer and manufacturer Analog Devices is committing billions of dollars to enhance its hybrid manufacturing model, aimed at boosting factory utilisation rates, as revealed in its Q4 earnings call.
This strategy involves capital investments and collaborations, particularly following the company’s acquisition of semiconductor company Maxim Integrated in 2021.
The firm has also strengthened its partnership with Taiwan Semiconductor Manufacturing Company (TSMC) to secure advanced 300mm manufacturing capacity in Japan, which will be critical in expanding its operations.
The hybrid manufacturing model seeks to protect Analog Devices from regional supply disruptions and improve flexibility by enabling the company to switch production capacity between its internal facilities and external partner foundries.
As noted by CFO Richard Puccio, this approach is expected to help Analog Devices capture 70% of its revenue in the coming years.
CEO Vincent Roche highlighted that since acquiring Maxim Integrated, Analog Devices has invested $2.7 billion in capital expenditures to increase its production capacity and fortify its resilience.
The Massachusetts-based company is making substantial strides in expanding its manufacturing presence across the US and Europe, with plans to double its output capacity by the end of 2025.
For instance, in July 2023, the company had unveiled plans to invest $1 billion in its Beaverton, Oregon plant, converting it into a full 8-inch fab to double its capacity. In Limerick, Ireland, Analog Devices is expanding its headquarters with a new almost 4180.64-square-metre (45,000-square-foot) R&D and manufacturing facility, which will triple its capacity. The company is also investing significantly in Camas, Washington, to double its production capabilities.
Currently, Analog Devices operates ten internal factories worldwide, complemented by partner foundries. One key collaboration, secured in February, is a long-term agreement with TSMC through its Japan-based subsidiary, Japan Advanced Semiconductor Manufacturing, which will grant the company additional wafer node capacity.
Despite a 23% year-over-year revenue decline in Q4, with total revenue dropping to $2.4 billion, Roche expressed optimism for fiscal year 2025. He pointed to the company’s strong operating margins, which remained above 40%, as a testament to the resilience of its business model despite facing a historic decline in revenue due to customer inventory issues.
While the company has struggled with low factory utilisation rates at its internal fabs over the past two quarters, Puccio noted a positive turnaround in Q4, primarily due to the ability to shift production capacity back into internal factories.
While utilisation rates are still below normal levels, this flexibility has enabled Analog Devices to recover from the trough it faced in Q2.
Looking ahead to FY 2025, the company plans to normalise its capital expenditure to 4-6% of revenue. Analog Devices expects the U.S. CHIPS and Science Act and the European Chips Act to provide a cash flow boost, with investment tax credits playing a pivotal role.
Additionally, the company finalised a $12 million award under the Oregon CHIPS Act in June, which will support its expansion of the Beaverton facility.
