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Turning Good Into Great at Analog Devices

Analog Devices Inc. is today the toast of the investment community.

Financial analysts are queuing up to recommend the stock to investment clients and raising their price target for the shares, sparking a frenzy that has boosted the stock in recent months. On Thursday, Oct. 7, Analog Devices’ stock price closed at $31.91, only a tad short of its 52-week high price of $32.19.

It’s not only analysts that are thrilled with Analog Devices. The company is getting positive raves from ratings agencies, too. Standard & Poor’s recently jacked up its corporate credit rating for ADI to A- from BBB+, citing the company’s “good market position in the analog semiconductor segment, conservative balance sheet, and consistent profitability,” according to analyst Lucy Patricola who adds, “the company's solid technology position and prudent management through operating cycles, and good cash balances should provide a good degree of downside ratings protection.”

Analog Devices deserves the commendation from investors and financial analysts. The company has benefited from surging demand for analog products in the last year, no doubt, but it has a lot more to its credit than a component shortage and demand-driven upturn. Analog Devices is acknowledged to be among the most conservatively managed companies in the semiconductor market, quietly inserting technologically advanced components into OEM products from its location in Massachusetts and via sales outlets and through distribution partners worldwide.

That’s not all. Analog Devices enjoys tremendous goodwill in the electronics market. It’s hard to get a negative comment about the company from anyone — rivals included — aside from mild complaints by journalists grousing that the company is not “press-savvy.”

True, Jerry Fishman, president and CEO of Analog Devices, grants few interviews and is reputed to prefer working quietly behind the scene to advance his company’s objectives with customers, suppliers, and investors. Fishman is famed also for never allowing current industry condition, market perception, or other non-tangible developments to drive longer-term strategies for his company.

If Analog Devices seems to be not so press-savvy, that would be because the company’s laser focus on customer satisfaction and intense engineering mindset pushes almost everything else aside. Almost four years ago, for instance, the company initiated a range of far-reaching reorganization actions designed to improve its overall performance and give it the opportunity to offer customers higher-end and technologically advanced products. Like its top two rivals — Texas Instruments and Maxim Integrated Products — the company has increased its focus on proprietary analog products, leaving smaller rivals to fight for the crumbs of commodity parts.

As commoditization crept up the analog food chain, Fishman believed it was time for the company to increase investments into innovative programs that would enable the company to offer higher value to customers, at a higher premium. That reorganization was not initiated because Analog Devices was underperforming. In fact, the company was humming along nicely. It didn’t need to refine its operation at the time, but Fishman was convinced that was the perfect time to restructure the company.

“When you are failing, change is easy because everyone knows the alternative is that you go out of business; but when you have a successful business it’s hard to get a very large and complex organization to embrace the idea that now is the time to make some changes,” Fishman said in an interview with me earlier this year. “We had a great business, and if we did nothing it would stay a good business, but we thought if we could figure out some ways to do things better we could make a good business into a really great business.”

Next week, I will post in my column excerpts from my interview with Fishman, because the issues he addressed remain relevant today. I'll also explore the subject everyone in the industry has been pondering for at least the last two years: Who will succeed Jerry Fishman at Analog Devices? Suggestions welcome.

8 comments on “Turning Good Into Great at Analog Devices

  1. Barbara Jorgensen
    October 8, 2010

    Interesting timing, Bolaji! One of the more recent tidbits I learned about ADI coincides with the topic of counterfeiting we discuss on this site. One of the ways suppliers discourage counterfeiting is they will not support or warranty a product that was not bought direct or through an authorized distributor. ADI is pretty emphatic about this practice, and their distributors like it: it cuts down on returns and helps keep ADI prices and margins stable.

  2. Anna Young
    October 9, 2010

    I am curious if Analog Devices is really being rewarded with higher valuation by investors because of the changes it made in recent years or because of the huge shortages many companies reported in recent quarters for analog components. I know the press has in recent times reported delivery times for analog chips from TI stretched into months a couple of quarters ago and this boosted the fortunes of all analog semi suppliers. Could it be that investors see Analog Devices' sales staying aloft due to the reported shortages? The link between corporate strategic management actions and market valuation are difficult to accurately trace at times. Any thoughts Bolaji?

  3. Hawk
    October 9, 2010

    The speculation about who could replace Mr. Fishman at Analog Devices is interesting. I tend to agree it could be a current Analog Devices executive. I am looking forward to reading the next piece on the subject because of two reasons. I want to know who the likely candidates might be and second, I want to know what Mr. Fishman thinks. In the article, Bolaji did not address whether or not Mr. Fishman wants to stand down as head of the company.

    At 64, it seems to me Mr. Fishman could keep going for another 10 years. It's not unheard of. On the other hand, if he has been doing this for over 10 years already and wants to devote time to other things in life, he might be planning to move on. So, Bolaji, did Mr. Fishman say if he was planning to retire? It's not just Analog Devices' board that would be interested in his future plans but also investors, customers and suppliers. There is a plan in place already at Analog Devices; most companies don't leave succession to chance. Can we peek behind the veil?

  4. bolaji ojo
    October 10, 2010

    Hawk, Jerry Fishman has not and probably won't be announcing retirement plans for some time. In my interview with him (excerpts will be posted shortly) Fishman said he was having fun at Analog Devices. He mentioned that the 5-year contract he signed with Analog Devices was reassuring for everyone–board of directors, investors, customers and employees–when the company announced the reorganization they embarked upon three to four years ago. Until then, he had not signed a contract with the company regarding his tenure as CEO. Even so, the contract did not imply that he would leave the job once the terms expired, Fishman said. I believe it was a psychologically important step on the part of everyone involved to allay concerns about the future executive direction of the company

    As to who might succeed Fishman as CEO, this would be speculation on my part. I agree the company may have a successor picked, at least in an interim capacity. I don't mind speculating on Fishman's likely successor as CEO at Analog Devices, though. That's my job here and I will be giving you my opinion in the next few days with some analysis and background information on the likely candidates. The best I can say here–already indicated in my article–is that this will be somebody from the current management. I would be surprised if Analog Devices went outside its current top executive team for a new CEO.

  5. SP
    October 10, 2010

    The CEO seems to have lots of patience and is clear with his vision. In my own experience in dealing with Analog devices, they are very good to deal with. I guess the after sales support is tremendous and that counts.

  6. Ashu001
    October 11, 2010

    Bolaji,

    I was not very familiar with the internal workings of Analog Devices(other than they made Great products with very good customer service);Thanks for this great article!

    My feeling after reading this article is that Jerry should stick around as long as he can.He should appoint competetent No.2s on each of his various Divisions who are loyal to him and will help to take a significant portion of the Load of his shoulders.That way he can stick around at AD for way longer than what is now routine for CEOs at Public Corporations(5 years Tops).

    I personally ladmire his distaste for publicity.He believes in letting his companies results(which are no doubt very impressive) speak for themselves.

    Regards

    Ashish.

     

  7. tioluwa
    October 11, 2010

    I agree with tech4people,Jerry passes in my book as an ideal business leader. The fact that things are going well is no reason to stay stagnant, progress and advancement is always the better option. What impresses me the most is the company hardly getting a negative comment, even from competitors, that is a well run company. I bet they don't have problem meeting social responsibilities and treating staffs and customers well.

  8. papri1
    October 18, 2010

    Analog devices are dominating inthe world where dogital world have not invaded up. Althought the analog products are beneficial if 'bandwidth' a specification is required to classify. Hence depending on the parameters are the instruments for precision it is still preferable.

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