Good morning. And welcome to the Analog Devices First Quarter Fiscal Year 2020 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. Michael Lucarelli, Senior Director of Investor Relations. Sir, the floor is yours.

Thank you, Cheryl. And good morning, everybody. Thanks for joining our first quarter fiscal 2020 conference call. With me on the call today are ADI's CEO, Vincent Roche; and ADI's CFO, Prashanth Mahendra-Rajah. For anyone who missed the release, you can find it and the related financial schedules at investor.analog.com. Now on to the disclosures. The information we're about to discuss, including our objectives and outlook, 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 in our most recent 10-Q. These forward-looking statements reflect our opinion as of the date of this call. We undertake no obligation to update these forward-looking statements in light of new information or future events. Our comments today about ADI's first quarter fiscal 2020 financial results and short-term outlook will also include non-GAAP financial measures, which exclude special items. When comparing results to historical performance, special items are also excluded from prior periods. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures and additional information about our non-GAAP measures are included in today's earnings release. And with that, I'll turn it over to ADI's CEO, Vincent Roche. Vince?

Thanks, Mike, and good morning to everybody. While our first quarter results were in line with our expectations, as you'll have seen, importantly, we managed our operating costs and working capital effectively to position ourselves to deliver margin expansion in the quarters ahead. Before I discuss the quarterly highlights, I'd like to address the coronavirus outbreak. First and foremost, our top priority is the health and safety of those affected and, of course, our employees. We're doing everything we can to provide our customers with the support they need to minimize disruption to their businesses. While the situation remains fluid, we are monitoring it closely. Prashanth will expand on the financial implications in just a while. So now on to the first quarter. Revenue was $1.3 billion, down versus the prior year, but in line with our expectations. Operating margin was approximately 37%, a decline versus last year due to lower revenue and our decision to lower utilization. Adjusted earnings per share was $1.03, above the midpoint of guidance. Over the trailing 12 months, we generated approximately $2 billion of free cash flow, equating to a 35% free cash flow margin, and this continues to place us in the top 10% of the S&P 500. On our call last quarter, we shared our priorities for 2020, and I'd like to give you an update on our progress so far. Priority 1 is the efficient use of our capital. The first call on our capital is funding new product development activities. In the first quarter, we invested over $250 million in R&D, with more than 90% of this spend targeting the most attractive opportunities across our B2B markets. For example, an area of increased focus for ADI is our power franchise. Here, we've been increasing R&D to enhance our strong position in the broad market and to extend into new opportunities across areas like data center, automotive, and 5G infrastructure. Our power design win momentum remains strong, and we expect to double the LTC historical revenue growth rates in the years ahead of us. At the same time, we remain committed to delivering strong shareholder returns. In the first quarter, we returned over $300 million to shareholders and we just announced a 15% increase to our quarterly dividend. Priority 2 is deepening customer centricity. As I've shared before, the combination of our broad product portfolio, domain expertise, and manufacturing capabilities sets ADI apart. We're always anticipating the technology needs of our customers and engaging with them early in order to solve their toughest challenges. And I'd like to share just a few examples specific to our automotive segment with you now. Our A2B platform continues to gain traction in the cabin electronics ecosystem. By leveraging our platform portfolio, we're opening up new applications for our customers such as active noise cancellation. In the quarter, Hyundai became the 14th auto manufacturer to incorporate our A2B technology. And together, we announced the industry's first all-digital road noise cancellation system. With the rise of active noise cancellation, we're creating stickier customer relationships due to the integration of our hardware and software capabilities while increasing our SAM per vehicle. There's also a lot of intensity and urgency in OEMs moving towards electric powertrains. We were an early player in the market, partnering with industry leaders to improve the efficiency of the battery in electric vehicles. As a result, our BMS solutions are delivering greater miles per charge and monitoring battery health more accurately. In the U.S. electric vehicle market, we're benefiting from near-term strength as customers ramp production, and new design wins across future models will help us to deliver on our long-term objective of growing BMS revenue at a double-digit rate. Priority 3 is capitalizing on secular trends to expand our addressable markets and drive diversified growth. We've previously discussed with you key secular trends across our company such as 5G, electric vehicles, factory automation, and data center. Now, today I'd like to spend some time on the space market, perhaps a more obscure subsegment of our industrial sector. Our space customers' challenges are not just around RF, signal processing, and power management. Space solutions must also perform under extreme cosmic radiation and conditions of high temperatures. We solve these challenges through the combination of our comprehensive product portfolio and the passive knowledge base built over many decades of serving this market. While space represents a couple of percent of ADI's total revenue today, it commands stellar margins, and we see potential to double the business over the next 5 years. Now let me share a little more with you about why this sector is exciting to us. The space market is rapidly evolving. Over the last decade, unprecedented levels of capital have gravitated towards this vertical, thereby increasing the number of privately funded space companies by 20x. Therefore, new technologies and capabilities are emerging that are leading to new opportunities for ADI. This includes the advent of low Earth orbit or LEO communication satellites. These satellites are becoming the new frontier in space with forecasts suggesting that by 2020, over 20,000 will be in orbit, up from just hundreds today. To provide some context, LEO satellites differ from today's geostationary or geo satellites. Technologically, they provide lower latency and higher bandwidth, which enable real-time communication. Operationally, they continuously change their position relative to the Earth and only stay connected with a given terminal for approximately 10 minutes. As a result, the number of terrestrial terminals that communicate with these satellites, whether they're on the ground or in the air, will grow into the millions with the proliferation of LEO satellites. To succeed in creating this network, both satellites and terminals must be capable of being steered. But this requires an exponential increase in channel count enabled through phased array antennas, an architecture that is used in 5G networks already today. As you can imagine, more channels packed into smaller form factors is increasing thermal and power hurdles. To help solve the engineering challenges of creating this ubiquitous and always-connected LEO network, our customers are increasingly turning to ADI, looking to us to not only be a supplier but, indeed, a key system architect. So we're engaging with customers early in their design process to develop end-to-end solutions from antenna to bits, combined with power capabilities, to deliver the required performance and, of course, robustness. Our ability to provide a comprehensive portfolio of space-grade solutions across the entire analog spectrum from RF and signal chain to power is unique. This cannot be completely replicated by any of our competitors, making ADI the go-to supplier for our traditional OEMs as well as the next wave of disruptors. All told, we see the LEO communications satellite plan becoming at least 4x the size of geo over the next 5 years. With LEO's shorter refresh cycle compared to today's satellites, we expect our space business to deliver a steadier stream of revenue in the years ahead. In summary, space has the potential to be a meaningful growth driver and unlock value across other verticals as well. Once fully operational, these LEO networks will provide real-time, reliable high-speed connections globally, ushering in opportunities from autonomous driving to telesurgery. So in closing, and speaking broadly about ADI, I believe demand for our solutions will be unprecedented as technological innovation underpinned by ubiquitous sensing, hyperscale and edge computing, and pervasive connectivity continues to grow rapidly. As I look ahead, I believe we're very well positioned to deliver sustainable, profitable growth and, indeed, strong shareholder returns.

Thank you, Vince. Let me add my welcome to our first quarter earnings call. My comments today, with the exception of revenue and non-op expenses, will be on an adjusted basis which excludes special items outlined in today's press release. ADI delivered a solid first quarter. Revenue came in line with our outlook as we meaningfully reduced channel inventory. And through our disciplined spending, operating margin and EPS were above the midpoint of guidance. We also raised our quarterly dividend to $0.62, an increase of 15%, the high end of our target range of 7% to 15%. The dividend is the cornerstone of our capital allocation policy, and this represents the 17th increase over the last 16 years. These consistent increases reflect our commitment to strong shareholder returns as well as our optimism about the long-term prospects for our business. Before getting into the income statement, let me first cover the end markets. In line with our expectations, our first quarter B2B revenue declined 15% year-over-year as better-than-expected industrial demand was balanced by softer communications activity. Industrial, which represented 53% of revenue during the quarter, declined 7% year-over-year. As we forecasted, most applications within this highly diversified business declined, while aerospace and defense once again grew double digits year-over-year. Communications, which represents 18% of revenue during the quarter, decreased 31% year-over-year as wireless and wired both declined. While communications is an inherently lumpy market, our position has never been stronger or more balanced across the ecosystem. We are at the early stages of the global 5G rollout, which we continue to expect will be a multiyear tailwind. Our auto business, which represented 16% of revenues during the quarter, declined 16% year-over-year due to weakness across all applications. As Vince highlighted, we remain confident in auto due to our strong pipeline of customer wins, especially in our infotainment platform and our market-leading BMS position. And lastly, consumer, which represents 13% of revenue during the first quarter, declined 20% due to portable applications. As we said in our last earnings call, we expect 2020 to be the bottom for our consumer segment. Now on to the P&L. Gross margin came in at 68.5%, up slightly sequentially and down 180 basis points year-over-year as favorable mix was offset by lower utilization. As a reminder, fab utilization was near trough levels this quarter in order to reduce our balance sheet and channel inventories. OpEx in the quarter was $412 million, down 4% sequentially and down 8% year-over-year. In light of the softer revenue environment, we've curtailed spending and have delivered sequential OpEx declines in each of the past 5 quarters. As a reminder, we plan to exit fiscal 2020 with $50 million of annualized savings across cost of goods sold and OpEx. Operating margin finished at approximately 37%, above the guided midpoint. Non-op expenses were $47 million, down $3 million sequentially and $9 million year-over-year, driven by lower interest expense. Our tax rate for the quarter was approximately 12%. All told, first quarter adjusted EPS came in above the midpoint of guide at $1.03. Now moving on to the balance sheet. As we planned, inventory was reduced by about $20 million or 4% sequentially. Despite this reduction, our inventory days increased to 133 due to the lower level of revenue. Recall that our target for inventory days is 115 to 125. But during the process of closing 2 legacy LTC facilities, we do expect to carry an additional 5 to 10 days of bridge inventory to support our customers. We also reduced channel inventory by approximately $40 million in the first quarter and plan to reduce channel inventory in the second quarter again but to a lesser degree. CapEx in the quarter was $55 million or about 4% of revenue, and we expect to end fiscal 2020 slightly below our 4% long-term target. On a trailing 12-month basis, free cash flow finished at $2 billion or a free cash flow margin of about 35%. Over this period, we have returned more than 100% of our free cash flow to shareholders through dividends and buybacks after debt repayments. We paid approximately $200 million in dividends and repurchased $106 million of our stock in the first quarter. We still plan to pay down between $300 million to $500 million of debt in fiscal 2020. Now we'll provide some context on our recent business trends and our current view on the coronavirus. In the first quarter, we saw signs of stabilization as we expected. Orders trended better throughout the quarter and have overall remained relatively resilient into the second quarter. However, unsurprisingly, we have begun to see weaker demand in China related to the extended Chinese New Year and ongoing business disruption. As such, our outlook assumes that China demand for industrial, automotive, and consumer is minimal for all of February before returning to a more normal level in the last 2 months of our second quarter. We are assuming an impact on our communications business due to the high likelihood of a delay in the 5G rollout. So while forecasting business dynamics in China is very difficult today, our guidance reflects our best estimates. So looking ahead to Q2, revenue is expected to be $1.35 billion, plus or minus $50 million. This includes an approximately $70 million revenue reduction due to the near-term risks associated with the coronavirus. As I said earlier, we expect to reduce channel inventory again but to a much lesser degree than in the first quarter. At the midpoint of $1.35 billion, we expect B2B revenue in the aggregate to increase mid- to high single digits sequentially with growth across all of our B2B markets of industrial, automotive, and communications. Based on the midpoint of guidance, operating margin is expected to be up sequentially to approximately 37.5%. We are planning for our tax rate to be between 10% and 12% for the quarter, and we are improving our fiscal 2020 outlook to between 11% and 13%. Based on these inputs, adjusted EPS is expected to be $1.10, plus or minus $0.08. While we are mindful of the uncertainty around this, I echo Vince's optimism. We are encouraged by near-term trends that point to stabilization and improvement across end markets, and we are extremely confident in the long-term growth opportunities for ADI.

Thanks, Prashanth. Okay. Let's get to our Q&A session.

Can we have our first question, please?

This is Jamie Zakalik on for Vivek. So similar to peers, you guys noted some stabilizing and improving trends in end markets in the January quarter, but it seems that growth has actually decelerated across all the end markets. So I guess are the improving trends more in February, even with a lot of these virus headwinds? And is it specific to any end market or geography? Or is it more broad-based?

Yes. So Jamie, I think the first quarter was in line with what we expected. So there was deceleration going into the first quarter. Now remember that in this quarter, we undershipped the channel. As I said in my prepared comments, we undershipped by $40 million. So on a revenue rec basis, PO ship-in was $40 million below sell-through. As we go into the second quarter, orders were improving over the course of the first quarter, and we expect that to continue into the second quarter with this note that we made on disruption in China where we believe some of this demand is going to get pushed out to future quarters. So I do think that our view here is that we've sort of bottomed out and it gets better from here through subsequent quarters.

Yes. I can provide some insights from a market perspective. Despite what appears to be a delayed 5G rollout in China, we anticipate good growth in our communications 5G sector and wireline during the second quarter. This growth is becoming more widespread. We are also noticing positive developments in factory automation and process control, which are important segments of ADI's industrial business, as well as increased strength in the ATE sector. Additionally, we are experiencing notable growth in our automotive business in both America and Europe at this time.

And our next question comes from Tore Svanberg from Stifel.

Yes. Vince, I was hoping you could elaborate a little bit more there on 5G. You said it's becoming a more broad-based business. Just trying to understand geographically where the growth is coming from, because, obviously, it's not coming from China near term. So if you could elaborate on that, that'd be great.

I believe that China has paused its growth for now. Currently, Asia remains the leader in 5G deployments. We are likely witnessing a quicker decline in 4G than expected. While there is a temporary slowdown in 5G in China, we anticipate demand will drive growth in the second quarter. Additionally, our wireline business, including data centers and metro or long-haul networks, is performing well. As we enter the second quarter, our book-to-bill ratio is significantly above 1, which boosts our confidence in the continued strength of that sector.

Tore, do you have a follow-up?

Yes. Just a quick one. Prashanth, you did a good job lowering channel inventory. It sounds like you're going to lower a bit more again this quarter. Could you maybe give us some targets either by weeks or what dollar amount are you trying to lower than by?

Well, I think we mentioned in our fourth quarter call that our goal was to get back to our target range by the end of the second quarter. It may take us a little longer now since we didn't factor in the impact of the coronavirus in the top line. We're still aiming for the same channel inventory target we had before, but with a somewhat softer top line. I think it might actually be the end of the third quarter before we're back in range.

Our next question comes from Toshiya Hari from Goldman Sachs.

Your automotive business was down 16% in the quarter, which was in line with your guidance. But relative to peers, a little worse on a year-over-year basis. Vince and Prashanth, you guys talked about your optimism around some of the design win activities in BMS and infotainment. But in the near term, what's driving kind of the double-digit decline in your automotive business? Is that mostly channel inventory reduction? Or are you losing share? I guess, more importantly, how are you guys thinking about kind of the through-cycle growth rate for your automotive business over the next couple of years?

We have been very clear about the two growth drivers for ADI in the automotive sector: the infotainment area, which includes A2B, active noise cancellation, and audio signal processing, and the battery management system (BMS), which has experienced double-digit growth over the past few years. In the last quarter, BMS faced challenges due to the virus, particularly because of its strong presence in China. However, we anticipate better trends in North America and Europe for the second quarter, leading to modest growth expectations. The main challenge for ADI has come from the safety sector, where our 24-gigahertz radar technology is declining at a faster rate than anticipated. Additionally, we are facing issues in the MEMS area, particularly in passive safety MEMS, where we reduced investment several years ago. We expect to see stabilization in these areas, especially regarding the new safety modality in 77 gigahertz, which customers find very promising. Overall, we are well positioned to grow in the powertrain and infotainment sectors over the next few years.

And our next question comes from Ambrish Srivastava from BMO.

Prashanth, I had a question on the actual weeks of channel inventory, and I might have missed it, but did you give an actual number? I think you were 8.5 weeks in the prior quarter.

We did not provide a specific number, Ambrish. What I indicated is that we reduced the channel inventory by $40 million. However, if you calculate it, we're still going to be above our target range because while the revenue has changed, the denominator has also decreased. So from a ratio perspective, the weeks are still high, but we made a significant reduction, and we plan to make more reductions in Q2 as mentioned.

Do you have a follow-up, Ambrish?

I did. Vince, maybe for you. In 2 areas, real quick on industrials. What's the right way to think about, given what's going on in China and broader, how to think about return to growth in the industrials business? You guys outperformed last year, but how should we think about year-over-year growth returning? And then in comms, we always ask you about wireless. I had a slightly different question. How are you guys positioned in wireline versus if you look back at 2, 3 years ago? And then what gets you excited about the design wins in that should be ramping out in wireline?

Thanks, Ambrish. Let me try and address the industrial question first. So we are seeing our aerospace and defense business continue to grow at double-digit rates annually. We are seeing, as I said a little earlier on, the factory automation side of things outside of Asia is on, I'd say, a solid improvement in its demand pattern. I think inventory hangover has largely been taken out of the equation in the industrial sector. So I think when you look at the impact of the virus in China, we're not expecting really anything in the industrial sector in terms of shipments there for the month of February. But all that said, we have a very solid book-to-bill in the industrial sector, and we will get, I think, a decent increase in our top line in industrial during the second quarter. On the wireline side of things, our game there is really 2 pieces. We have a very strong leadership position in optical control systems for data centers. So all of the FANGs, for example, would use our technology in their data centers for control of the optical signal chain and also the cable market, we have a good position there in infrastructure systems. So, wireline business has been growing high single digits now for several years, and I don't see any decline in that. I think that will be a decent growth driver for ADI. It runs into the region of $400 million annually in terms of sales at present time. So I view that very much, Ambrish, as a tailwind for the company.

Yes. Let me also add on the industrial side, we did take down general inventory meaningfully. A lot of that relates to industrial. And if you look at industrial, you kind of zoom out and you look at it on a trailing 12-month basis, we're only down low single digits, which is a pretty good performance in a tough macro backdrop, and that goes to the diversity of that business.

Our next question comes from Mitch Steves from RBC Capital Markets.

Great quarter. But I just wanted to clarify a couple of things. I think you guys have done a very good job now kind of talking about your capital allocation, but what I'm having a hard time understanding is kind of the margin mix here. I realize that space and satellite is probably higher margin. I'm guessing like 80%, 90% gross margin. You guys are actually coming down a bit on the gross margin line. Can you maybe talk us through what the gross margin profile should look like in the first half and the second half? And then how that would flow through the operating margin line as well?

Sure. Yes. Thanks for the question, Mitch. So I guess, a little bit of background, right? Our model is 70% gross margins sort of long-term model. In good times, we were operating at 72%. In more challenging times, like now, we're down in the high 60s. So through the cycle, 70%. As we move forward from here, we see 2 things that are going to be impacting margins, both utilization and mix. So Q1 represented the trough level of our utilization expectations for the year. So a fair amount of under absorption in our internal manufacturing facilities, that gets better from here on, and that will be tailwind to margins. Also, as some of the questions that were asked, Vince mentioned the strength in industrial. We expect industrial to continue to be growing as we move forward. And industrial, in general, is one of our highest margin businesses, so that will also provide tailwind. So I would expect that you could see sequential improvement in gross margins through the balance of this year, likely getting back to our model margins in the second half, maybe towards the end of the year.

Okay. That's very helpful. And then I just have one follow-up. Just in terms of the seasonality for the business. I think maybe you should probably be taking a little bit of a more conservative view in April just because it sounds like China is going to open up March 1. But when I look at the July quarter going from April to July, should that be, I guess, above seasonal, given that April is depressed from all the macro items that are going on?

The guidance for our second quarter included a $70 million adjustment for the impact of the coronavirus. We accounted for that by effectively eliminating February's figures in China for industrial, automotive, and consumer sectors, and also made an adjustment for delays in 5G deployment due to labor challenges. We anticipate that this will start to normalize in the upcoming months and should return to normal by the third quarter. There is a possibility that it could exceed normal levels, depending on how the $70 million figures are realized. It seems to be a timing issue rather than lost demand, but pinpointing when it will return is difficult. However, the order activity indicates that demand is still present.

Our next question comes from Stacy Rasgon from Bernstein Research.

I wanted to focus first on communications. It seems like you're extending the timeline. Your previous guidance for communications last year indicated growth year-over-year, but it feels like you're moving away from that. In the second half, your old guidance anticipated very strong sequential growth each quarter. How should we view the trajectory of communications in the second half, considering the increase in Q2 compared to the expectations you had three months ago when you provided guidance? Do you still expect to see a similar ramp, perhaps starting from a lower base?

Yes. So I guess a few things, Stacy. For the first quarter, a little bit lower than we expected, mainly due to the 5G pause that started in the second half of '19. Moving into the second quarter, orders have begun to come back in very much as we expected, and our book-to-bill is above 1. So that's supporting a strong sequential increase in second quarter for both 5G but also as Vince mentioned, we're seeing some good strength in wireline as has been reported by a number of peers as well. The sequential increase is below our initial expectations because a lot of that was related to 5G timing in China. I think everything is moving a little bit to the right here. So it's hard for us to say at this point whether the timing of that recovery is still going to put us up year-on-year, but I think we'll have to see how quickly this demand recovers and whether the installations happen as is it caught up in the year or not? But we feel very good that this is really a dislocation of demand versus actual loss or destruction.

Yes. I'd say one other comment on that, Stacy. Our optimism about what's happening in America relating to 5G has strengthened over the past quarter as well. So yes, we have the disruption in China. It's really a delay of demand rather than destruction. But my own sense is that we probably see more activity at the back end of the year in the U.S. relating to 5G.

Do you have a follow-up Stacy?

I do. So it sounds like also, even though we have the delay because of coronavirus in China, that the order patterns still seem to be very strong. How do we think about the strength of those Chinese orders in relation to potential increases in sanctions that we've been hearing about? Do you feel like there's any sort of scramble on the part of Chinese customers to get out in front of those sanctions? I guess what are you seeing in terms of customer behavior in relation to the regulatory?

Yes. First, the geopolitical situation is complex and difficult to understand. However, in general, our business has many thousands of customers in China and a wide range of product SKUs, and we continue to see strong demand. There are certain areas where we face restrictions, particularly in 5G, but overall, our business is functioning in a normalized market and regulatory environment. Even with the disruptions caused by the virus, demand in China remains quite robust across the board.

Let me rephrase the question. If, all of a sudden, like the de minimis threshold gets dropped from 25% to 10% and the foreign direct products will get strengthened, and they put more stuff on the controllers, does that impact how you guys view the trajectory in China as we go through the year? Would you have to reevaluate what you can ship and what you can't?

Yes, we would need to reevaluate. However, we have already adjusted one large communications customer from a traditional mid-single-digit contribution to a low single-digit percentage of revenue. This represents the extent of our exposure, depending on the circumstances surrounding that particular customer.

Yes. I think it very much depends on the scope of what happens. So far, everything we've seen is relating to one specific area of communication. So unknown, Stacy, but we'll see. Time will tell.

And our next question comes from Craig Hettenbach from Morgan Stanley.

I wanted to follow up on the potential to double Linear's growth in the coming years. Prashanth, could you discuss the gross margin levers as you consolidate manufacturing and how you're viewing that regarding the growth profile and margins for Linear over the next few years?

Sure, I'll address the margin aspect. Regarding doubling the growth, I'll leave that to Vince. On the margin front, we've discussed our focus on closing two facilities, and we've made announcements about that. We have actually managed to speed up some of the savings from one of these factory closures, so we expect to start seeing benefits in our cost of goods by the end of this year. The remaining portion of the $100 million in savings is anticipated to gradually come in over 2021. As mentioned in the Q4 earnings call, our plan is to let all of that flow through to the bottom line. Therefore, we will not be redeploying those cost-saving benefits, and you can expect to see an increase in our gross margins moving forward as we finish 2020 and throughout 2021.

Yes, I believe we're making good progress in equalizing the value of our legacy ADI mixed-signal technology in application with power. We're looking for equivalence, aiming for a dollar of mixed signal for every dollar of power, which reflects the market opportunity. Our pipeline for the LTC portfolio, particularly in power, is up about 40% year-over-year. We're moving into production in the automotive and communication wireless sectors, and we are also in early volume production in wired. We anticipate these areas will significantly impact our top line during 2021. There are numerous new opportunities in the industrial area, though these will take longer to convert from design-ins to revenue. Similar to our experience with Hittite, where we doubled the company's size over the last five years, we feel we're on a strong path with LTE to achieving 200 to 300 basis points of top line growth based on portfolio strength and customer activity.

Our next question comes from Harlan Sur from JPMorgan.

It's encouraging to see the fundamentals starting to improve. A&D grew by over 20% last year. The defense budget was approved at the beginning of this year, showing a strong 4% increase compared to last year. You all anticipate continued double-digit year-over-year growth in A&D this year. Is most of this growth coming from the defense segment, or are there also programs in the commercial aerospace SATCOM sector that are beginning to progress as well?

Yes. As I mentioned in the prepared remarks, defense budgets are favorable for acquiring and deploying technology, putting us in a strong position. We are also experiencing robust double-digit growth in the space sector, which has been a solid area for us. The surge in the launch of LEO and geo satellites is significantly driving demand for our company. In these applications, there are potentially many thousands of dollars of content generated per satellite. We are very optimistic about this growth, as both segments of our business are performing well.

Harlan, I would say, remember, think about defense as when DoD gives the money to the primes and the primes start deploying it, this is going into design decisions that were made many years ago. So we're enjoying the flow of that larger budget into the primes. And then to us, for decisions that were made some time ago, we still have quite a bit of great design activity that has yet to be funded. So that's on to come. On the aerospace side, it's holding as well as can be expected given the environment that's going on there. And then in space, as Vince mentioned, space is really in front of us; that growth is in front of us. So while A&D has been growing at a nice clip and continues to, we feel even more optimistic about what's in front of us, coming both from space and future design win activity that's happened for the defense business.

And our last question comes from William Stein from SunTrust.

Two of them, really. First, I'm hoping you can provide some update or commentary as to the competitive situation and maybe the legal competitive situation with an FPGA supplier in high-performance converters, maybe competitive trends as to design win traction relative to that vendor.

Well, generally speaking about competition, we have outpaced our closest competitors for the last three years. We are clearly gaining market share across the board, particularly in communications and industrial sectors. Competitively, we are in a good position, and pricing remains very stable. Overall, our legacy is strong, and our design pipeline is robust. We are excited about the new R&D programs that are coming to fruition for the company. Regarding the litigation with a large FPGA company, we will keep you informed as new information becomes available and will communicate openly. At this point, I can say that we are confident in our case as it moves through the courts and believe that it will be resolved successfully. We are vigorously defending our intellectual property and believe we have a very strong case. So that's the current situation; it is within the courts, but we remain optimistic about the progress.

You said you had a follow-up, Will?

Yes. I appreciate that. Just on the COVID impact. It sounds like what you're saying is that you're assuming certain orders are 0 for February. Given we're February 19th, I assume that's actually what you're seeing in the order book. Is there any anticipation for weakness later in the quarter? And also, any supply disruption that you're noticing at all?

Sure. Regarding the orders, as I mentioned earlier, it's quite challenging to gauge the situation in China. When we estimated our $70 million, we aimed to provide clarity to investors and analysts about the assumptions we're using, understanding that these can change quickly. For our projections, we've considered our activities in China to be at zero in February and have slightly delayed 5G. On the supply chain front, we are currently not experiencing significant disruptions. In the early stages, some of our back-end suppliers faced challenges with acquiring labor to maintain their operations, but those issues have since been resolved. Overall, we feel confident about our supply chain, and we confirmed this with our team just this morning.

Thanks, Will. To address your question and clarify our outlook for B2B, it's important to give you a breakdown of what we expect for each market as there seems to be some confusion. We anticipate sequential growth in each market, with B2B projected to increase in the mid- to high single digits overall. If I were to prioritize, I'd say communications is performing slightly better than that, industrial aligns with our overall outlook, and automotive is expected to perform a bit below that. This context should help you understand the impact of current events on our business. Thank you all for joining us today. The transcript will be available on our website, along with all reconciling information and details found in the quarterly results section. Thank you again for your interest in Analog Devices.

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