Item 2. Management’s Discussion and Analysis
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This information should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q and the audited consolidated financial statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended November 2, 2024 (fiscal 2024).
This Quarterly Report on Form 10-Q, including the following discussion, contains forward-looking statements regarding future events and our future results that are subject to the safe harbor created under the Private Securities Litigation Reform Act of 1995 and other safe harbors under the Securities Act of 1933 and the Securities Exchange Act of 1934. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. These statements are based on current expectations, estimates, forecasts and projections about the industries in which we operate and the beliefs and assumptions of our management. Words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “continues,” “potential,” “may,” “could” and “will,” and variations of such words and similar expressions are intended to identify such forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors.
The following important factors and uncertainties, among others, could cause actual results to differ materially from those described in the forward-looking statements: economic, political, legal and regulatory uncertainty or conflicts, including actions taken or which may be taken by the presidential administration, executive offices of the U.S. government, or U.S. Congress, monetary policy, political, geopolitical, trade, or other issues in the United States or internationally, including increased tariffs or trade wars, and the ongoing conflicts between Russia and Ukraine and in Israel and the Middle East; changes in demand for semiconductor products; manufacturing delays, product and raw materials availability and supply chain disruptions; diversion of products from our authorized distribution channels; changes in export classifications, import and export regulations or duties and tariffs; our development of technologies and research and development investments; our future liquidity, capital needs and capital expenditures; our ability to compete successfully in the markets in which we operate; our ability to recruit and retain key personnel; risks related to acquisitions or other strategic transactions; security breaches or other cyber incidents; adverse results in litigation matters; reputational damage; changes in our estimates of our expected tax rates based on current tax law; risks related to our indebtedness; the discretion of our Board of Directors to declare dividends and our ability to pay dividends in the future; factors impacting our ability to repurchase shares; and uncertainty as to the long-term value of our common stock. Additional factors that could cause actual results to differ materially from those described in these forward-looking statements include the risk factors included in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for fiscal 2024. Forward-looking statements represent management’s current expectations and are inherently uncertain. We undertake no obligation to revise or update any forward-looking statements, including to reflect events or circumstances occurring after the date of the filing of this report, except to the extent required by law.
Results of Operations
Overview
Amounts in the table below are reflected in thousands except per share amounts and percentages.
Three Months Ended
February 1, 2025 February 3, 2024 $ Change % Change
Revenue $ 2,423,174 $ 2,512,704 $ (89,530) (4) %
Gross margin % 59.0 % 58.7 %
Net income $ 391,316 $ 462,727 $ (71,411) (15) %
Net income as a % of revenue 16.1 % 18.4 %
Diluted EPS $ 0.78 $ 0.93 $ (0.15) (16) %
We have a 52-53 week fiscal year that ends on the Saturday closest to the last day in October. The fiscal year ending November 1, 2025 (fiscal 2025) is a 52-week fiscal year and fiscal 2024 was a 53-week fiscal year. The additional week in fiscal 2024 was included in the first quarter ended February 3, 2024. Therefore, the first three months of fiscal 2025 included one less week of operations as compared to the first three months of fiscal 2024.
Revenue Trends by End Market
The following table summarizes revenue by end market. The categorization of revenue by end market is determined using a variety of data points including the technical characteristics of the product, the “sold to” customer information, the “ship to” customer information and the end customer product or application into which our product will be incorporated. As data systems
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for capturing and tracking this data and our methodology evolves and improves, the categorization of products by end market can vary over time. When this occurs, we reclassify revenue by end market for prior periods. Such reclassifications typically do not materially change the sizing of, or the underlying trends of results within, each end market.
Three Months Ended
February 1, 2025 February 3, 2024
Revenue % of
Revenue* Y/Y% Revenue % of
Revenue*
Industrial $ 1,077,900 44 % (10) % $ 1,191,713 47 %
Automotive 732,513 30 % (2) % 748,781 30 %
Consumer 322,900 13 % 19 % 270,211 11 %
Communications 289,861 12 % (4) % 301,999 12 %
Total revenue $ 2,423,174 100 % (4) % $ 2,512,704 100 %
* The sum of the individual percentages may not equal the total due to rounding.
Revenue decreased 4% in the three-month period ended February 1, 2025 as compared to the same period of the prior fiscal year, primarily as a result of the impact of an additional week of operations in the first quarter of fiscal 2024 as compared to the first quarter of fiscal 2025. The Industrial end market decline is also due to the continued reduction in customers’ inventory balances. The decline in the Communications end market was also driven by weak demand in the wireless sub-market, partially offset by growth in the wireline sub-market driven by data center infrastructure build outs primarily to support growth in artificial intelligence applications. The Consumer increase was driven by greater share gains.
Revenue by Sales Channel
The following table summarizes revenue by sales channel. We sell our products globally through a direct sales force, third-party distributors, independent sales representatives and via our website. Distributors are customers that buy products with the intention of reselling them. Direct customers are non-distributor customers and consist primarily of original equipment manufacturers. Other customers include the U.S. government, government prime contractors and certain commercial customers for which revenue is recorded over time.
Three Months Ended
February 1, 2025 February 3, 2024
Revenue % of Revenue* Revenue % of Revenue*
Channel
Distributors $ 1,375,464 57 % $ 1,535,210 61 %
Direct customers 1,019,872 42 % 939,975 37 %
Other 27,838 1 % 37,519 1 %
Total revenue $ 2,423,174 100 % $ 2,512,704 100 %
* The sum of the individual percentages may not equal the total due to rounding.
As indicated in the table above, the percentage of total revenue sold via each channel has remained relatively consistent in the periods presented, but can fluctuate from time to time based on end market revenue trends. As a percentage of total revenue, the decrease in the distributor channel is primarily due to the decrease in revenue in our Industrial end market.
Gross Margin
Three Months Ended
February 1, 2025 February 3, 2024 $ Change % Change
Gross margin $ 1,430,303 $ 1,473,941 $ (43,638) (3) %
Gross margin % 59.0 % 58.7 %
Gross margin percentage increased by 30 basis points in the three-month period ended February 1, 2025 as compared to the same period of the prior fiscal year, primarily due to a decrease in amortization expense related to acquired intangible assets.
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Research and Development (R&D)
Three Months Ended
February 1, 2025 February 3, 2024 $ Change % Change
R&D expenses $ 402,892 $ 391,427 $ 11,465 3 %
R&D expenses as a % of revenue 17 % 16 %
R&D expenses increased in the three-month period ended February 1, 2025, as compared to the same period of the prior fiscal year, primarily as a result of increased discretionary spending and higher benefit expenses, partially offset by the impact of an additional week of operations in the first quarter of fiscal 2024 as compared to the first quarter of fiscal 2025.
R&D expenses as a percentage of revenue will fluctuate from year-to-year depending on the amount of revenue and the success of new product development efforts, which we view as critical to our future growth. We expect to continue the development of innovative technologies and processes for new products. We believe that a continued commitment to R&D is essential to maintain product leadership with our existing products as well as to provide innovative new product offerings.
Selling, Marketing, General and Administrative (SMG&A)
Three Months Ended
February 1, 2025 February 3, 2024 $ Change % Change
SMG&A expenses $ 284,796 $ 290,078 $ (5,282) (2) %
SMG&A expenses as a % of revenue 12 % 12 %
SMG&A expenses decreased in the three-month period ended February 1, 2025, as compared to the same period of the prior fiscal year, primarily as a result of the impact of an additional week of operations in the first quarter of fiscal 2024 as compared to the first quarter of fiscal 2025 and lower SMG&A employee-related variable compensation expenses, partially offset by higher benefit payments.
Amortization of Intangibles
Three Months Ended
February 1, 2025 February 3, 2024 $ Change % Change
Amortization expenses $ 187,415 $ 190,332 $ (2,917) (2) %
Amortization expenses as a % of revenue 8 % 8 %
Amortization expenses decreased in the three-month period ended February 1, 2025, as compared to the same period of the prior fiscal year, primarily as a result of a portion of our acquired intangible assets becoming fully amortized during fiscal 2024.
Special Charges, Net
Three Months Ended
February 1, 2025 February 3, 2024 $ Change % Change
Special charges, net $ 63,887 $ 16,140 $ 47,747 296 %
Special charges, net increased in the three-month period ended February 1, 2025, as compared to the same period of the prior fiscal year, primarily due to increased charges related to our Global Repositioning Actions. See Note 5, Special Charges, Net , in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion.
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Nonoperating Expense (Income)
Three Months Ended
February 1, 2025 February 3, 2024 $ Change
Total nonoperating expense (income) $ 55,737 $ 72,546 $ (16,809)
The year-over-year decrease in nonoperating expense (income) in the three-month period ended February 1, 2025, as compared to the same period of the prior fiscal year, was primarily the result of higher interest income on our cash, cash equivalents and short-term investments.
Provision for Income Taxes
Three Months Ended
February 1, 2025 February 3, 2024 $ Change
Provision for income taxes $ 44,260 $ 50,691 $ (6,431)
Effective income tax rate 10.2 % 9.9 %
The effective tax rates for the three-month periods ended February 1, 2025 and February 3, 2024 were below the U.S. statutory tax rate of 21% due to lower statutory tax rates applicable to our operations in the foreign jurisdictions in which we earn income, primarily in Ireland.
Net Income
Three Months Ended
February 1, 2025 February 3, 2024 $ Change % Change
Net income $ 391,316 $ 462,727 $ (71,411) (15) %
Net income as a % of revenue 16.1 % 18.4 %
Diluted EPS $ 0.78 $ 0.93
Net income decreased in the three-month period ended February 1, 2025, as compared to the same period of the prior fiscal year, as the result of a $94.7 million decrease in operating income partially offset by a $16.8 million decrease in nonoperating expense (income) and a $6.4 million decrease in provision for income taxes.
Liquidity and Capital Resources
At February 1, 2025, our principal source of liquidity was $2.7 billion of cash, cash equivalents and short-term investments, of which approximately $1.4 billion was held in the United States, and the balance of which was held outside the United States in various foreign subsidiaries. We manage our worldwide cash requirements by, among other things, reviewing available funds held by our foreign subsidiaries and the cost effectiveness by which those funds can be accessed in the United States. We do not expect current regulatory restrictions or taxes on repatriation to have a material adverse effect on our overall liquidity, financial condition or results of operations. Our cash, cash equivalents and short-term investments consist of highly liquid investments, including money market funds and corporate and bank obligations. We maintain these balances with counterparties with high credit ratings, and continually monitor the amount of credit exposure to any one issuer and diversify our investments in order to minimize our credit risk.
We believe that our existing sources of liquidity and cash expected to be generated from future operations, together with existing and anticipated available short- and long-term financing, will be sufficient to fund operations, capital expenditures, research and development efforts and dividend payments (if any) in the immediate future and for at least the next twelve months.
Three Months Ended
February 1, 2025 February 3, 2024
Net cash provided by operating activities $ 1,126,809 $ 1,138,832
Net cash provided by operations as a % of revenue 47 % 45 %
Net cash used for investing activities $ (194,301) $ (219,101)
Net cash used for financing activities $ (573,856) $ (574,232)
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The following changes contributed to the net change in cash and cash equivalents in the three-month period ended February 1, 2025 as compared to the same period in fiscal 2024.
Operating Activities
Cash provided by operating activities is net income adjusted for certain non-cash items and changes in operating assets and liabilities. The decrease in cash provided by operating activities during the three-month period ended February 1, 2025, as compared to the same period of the prior fiscal year, was mainly the result of lower net income adjusted for noncash items that was primarily offset by a decrease in working capital.
Investing Activities
Investing cash flows generally consist of capital expenditures and cash used for acquisitions. The change in cash used for investing activities during the three-month period ended February 1, 2025, as compared to the same period of the prior fiscal year, was primarily the result of a decrease in cash used for capital expenditures as the rate of spending on our global resiliency and hybrid manufacturing footprint moderated, partially offset by cash paid for an acquisition in the first quarter of fiscal 2025.
Financing Activities
Financing cash flows generally consist of payments of dividends to stockholders, repurchases of common stock, issuance and repayment of debt and proceeds from the sale of shares of common stock pursuant to employee equity incentive plans. The change in cash used for financing activities during the three-month period ended February 1, 2025, as compared to the same period of the prior fiscal year, was primarily the result of higher dividend payments to shareholders partially offset by lower common stock repurchases.
Working Capital
February 1, 2025 November 2, 2024 $ Change % Change
Accounts receivable $ 1,192,442 $ 1,336,331 $ (143,889) (11) %
Days sales outstanding* 47 46
Inventory $ 1,474,656 $ 1,447,687 $ 26,969 2 %
Days cost of sales in inventory* 134 127
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* We use the average of the current quarter and prior quarter ending net accounts receivable and ending inventory balance in our calculation of days sales outstanding and days cost of sales in inventory, respectively.
The decrease in accounts receivable in dollars was primarily the result of variations in the timing of collections and billings and decreased revenue levels in the first quarter of fiscal 2025 as compared to the fourth quarter of fiscal 2024.
Inventory increased primarily as a result of our efforts to balance manufacturing production, demand and inventory levels. Our inventory levels are impacted by our need to support forecasted sales demand and variations between those forecasts and actual demand.
Current liabilities decreased to $2,971.0 million at February 1, 2025 as compared to $2,988.3 million at the end of fiscal 2024 due to lower accounts payable partially offset by increased accrued liabilities and income taxes payable.
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Debt
As of February 1, 2025, our debt obligations consisted of the following:
Principal Amount Outstanding
Commercial paper notes $ 548,403
2025 Notes, due April 2025 400,000
2026 Notes, due December 2026 900,000
2027 Notes, due June 2027 440,212
2028 Notes, due October 2028 750,000
2031 Notes, due October 2031 1,000,000
2032 Notes, due October 2032 300,000
2034 Notes, due April 2034 550,000
2036 Notes, due December 2036 144,278
2041 Notes, due October 2041 750,000
2045 Notes, due December 2045 332,587
2051 Notes, due October 2051 1,000,000
2054 Notes, due April 2054 550,000
Total debt $ 7,665,480
The indentures governing our outstanding notes contain covenants that may limit our ability to: incur, create, assume or guarantee any debt for borrowed money secured by a lien upon a principal property; enter into sale and lease-back transactions with respect to a principal property; and consolidate with or merge into, or transfer or lease all or substantially all of our assets to, any other party. As of February 1, 2025, we were in compliance with these covenants.
Commercial Paper Program
Under our commercial paper program, we may issue short-term, unsecured commercial paper notes in amounts up to a maximum aggregate face amount of $2.5 billion outstanding at any time, with maturities of up to 397 days from the date of issuance. As of February 1, 2025, we had $548.4 million of outstanding borrowings under the commercial paper program recorded in the Condensed Consolidated Balance Sheet. We use the net proceeds of the commercial paper program for general corporate purposes, including without limitation, repayment of indebtedness, stock repurchases, acquisitions, capital expenditures and working capital.
Revolving Credit Facility
Our Third Amended and Restated Revolving Credit Agreement, dated as of June 23, 2021 and as amended (Revolving Credit Agreement), provides for a five year unsecured revolving credit facility in an aggregate principal amount not to exceed $2.5 billion (subject to certain terms and conditions).
We may borrow under this revolving credit facility in the future and use the proceeds for repayment of existing indebtedness, stock repurchases, acquisitions, capital expenditures, working capital and other lawful corporate purposes. The terms of the Revolving Credit Agreement impose restrictions on our ability to undertake certain transactions, to create certain liens on assets and to incur certain subsidiary indebtedness. In addition, the Revolving Credit Agreement contains a consolidated leverage ratio covenant of total consolidated funded debt to consolidated earnings before interest, taxes, depreciation, and amortization (EBITDA) of not greater than 3.5 to 1.0. As of February 1, 2025, we were in compliance with these covenants.
Stock Repurchase Program
As of February 1, 2025, our Board of Directors authorized us to repurchase $16.7 billion of our common stock under our common stock repurchase program and $1.5 billion remained available for repurchases under the program. The repurchased shares are held as authorized but unissued shares of common stock.
On February 18, 2025, our Board of Directors authorized us to repurchase an additional $10.0 billion of our common stock, bringing the total remaining share repurchase authorization to approximately $11.5 billion. Under the share repurchase program, we may repurchase outstanding shares of our common stock from time to time on the open market or through privately negotiated transactions. Unless terminated earlier by resolution of our Board of Directors, the repurchase program will terminate when we have utilized the entire amount under the program.
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Capital Expenditures
Net additions to property, plant and equipment were $149.0 million in the first three months of fiscal 2025. We expect capital expenditures for fiscal 2025 to be between approximately 4% and 6% of fiscal 2025 revenue as spending returns to our long-term operating model. These capital expenditures will be funded with a combination of cash on hand and cash expected to be generated from future operations, together with existing and anticipated available short- and long-term financing.
Dividends
On February 18, 2025, our Board of Directors declared a cash dividend of $0.99 per outstanding share of common stock. The dividend will be paid on March 17, 2025 to all shareholders of record at the close of business on March 4, 2025 and is expected to total approximately $491.0 million. We currently expect quarterly dividends to continue in future periods. The payment of any future quarterly dividends, or a future increase in the quarterly dividend amount, will be at the discretion of the Board of Directors and will be dependent upon our financial position, results of operations, outlook, liquidity and other factors deemed relevant by the Board of Directors.
New Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board that are adopted by us as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards will not have a material impact on our future financial condition, results of operations, and disclosures. See Note 11, New Accounting Pronouncements, in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for a description of recently issued and adopted accounting pronouncements, including the dates of adoption and impact on our historical financial condition, results of operations, and disclosures.
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