For chip companies, much of earnings season has been a let-down because of weakening markets such as personal computers. But one chip company is sailing through it.

Analog Devices on Tuesday morning reported its tenth quarter in a row of topping revenue expectations, and its thirteenth quarter in a row of topping consensus with its revenue outlook.

CEO Vincent Roche told analysts during the morning conference call that it had been a “record quarter” to top off “a banner year.”

The stock rose six percent on Tuesday, and was up again on Wednesday. Price targets are rising at numerous shops to over $200, which would be a gain of sixteen percent or more from a recent $172.97.

I was happy to see all that given that Analog Devices is one of the TL20 list of stocks to consider owning. The shares, with this bounce, are now up nine percent since I inaugurated the TL20 in July.

Analysts, though, struggled Tuesday to understand just how this could be such a great time for Analog given what’s going on in the rest of the chip market.

Said Roche, “ADI, like the rest of the industry, is not immune to a softer macro environment and thus, we remain cautious, yet optimistic.”

TL20 stocks in focus.

That was not enough for the Street. “Are you surprised why your orders and bookings are holding up better, even though all the headlines we see from a macro perspective seem to be getting tougher?” asked Merrill Lynch’s Vivek Arya.

Analyst Ambrish Srivastava seconded the inquiry. “I think Vivek asked the right question,” he said. “Were you surprised? Is there a seasonality to it? I mean nobody doubts your positioning and how strong you are in your chosen markets.”

The response from both Roche, and from CFO Prashanth Mahendra-Rajah, was that Analog Devices is not exposed to the same markets and product categories as all those other companies.

Said Roche, "never have we been more diverse in terms of geographies, customer coverage, depth of coverage, depth of engagement,” adding that Analog has “product life cycles that stretch into the decades with very, very stable pricing.”

He was, in other words, making a case that Analog’s profile as a chip supplier is rather different. And that very much holds up if you look at what the company sells and to whom.

ADI Chart by TradingView

Unlike Intel and AMD and most other chip makers that focus on manipulating digital ones and zeros, Analog, as its name would suggest, has a very large portion of its product portfolio in what are call analog chips. These are chips that manipulate some kind of real-world signal, such as heat or sound or light, or electrical voltage. They either convert that signal to ones and zeros, for processing, or they directly manipulate the signal in real time, as a continuous variable.

This is why Analog Devices is rather unique, and why its current fortunes don’t align with the trouble everyone else is seeing.

As I wrote in a longish piece in 2021, it is the manipulation of those real-world signals that gives Analog Devices a tremendous breadth and depth and variety in the products and markets it supports. Over half the company’s revenue comes from what is called the “industrial” market, which is an amazing cornucopia of devices, things such as sensor chips that monitor factory equipment to detect levels of vibration (for faults or problem hints), or medical devices, where its chips are boosting the resolution of CT scans.

During Tuesday morning’s call, it was all those strange, unique markets that were, according to Roche, still surging even as markets such as smartphones and PCs cause problems for other chip makers.

Roche described a variety of “design wins,” when the company has been selected to have its chips built into a certain product. A piece of diagnostic equipment to “monitor machine health” at a “global supplier for energy exploration.” Chips for “high-voltage testers” of electric vehicles and renewable energy systems. Wireless transceiver chips going into 5G wireless network infrastructure. So-called “gigabit” communications chips that make for high-resolution displays in the cockpit of new cars.

Moreover, said Roche, the company has contracts that allow it to see years down the road for many product categories because they are not things like phones: they don’t change with the fashion every year. These are industrial products that are designed and assembled over many, many years.

For example, said Roche, “digital healthcare has been growing at the company in double digits for the last seven years or thereabouts,” in terms of revenue from health equipment like CT scans. “We expect to see that continue.”

And aerospace and defense markets, he said, are “likely to be a very brisk business,” said Roche. They’ve been “performing well for ADI now, and I believe, at least for the next five years, we will see stellar growth in that area.” The company’s chips for "energy and sustainability businesses are also beginning to really go on the uptick.”

EVs, said Roche, are a particular area of focus that’s paying off. “We're getting a very strong tailwind from the electrification of the vehicle, in fact, we're gaining a lot of share in general, I think, with in-cabin and the electric vehicle,” he said.

At the same time, Analog Devices is defined by what it is not. It sells chips into consumer electronics markets, which make up thirteen percent of the company’s revenue. However, said CFO Mahendra-Rajah, a third of that revenue "is derived from long- life-cycle prosumer applications, including next-gen conferencing systems, professional AV and home theater,” things not necessarily as volatile as smartphones, in other words. The rest of the consumer revenue, he said, the other two thirds, “relates to the faster-growing wearables and hearables as well as premium smartphones.”

See also:

A map of the future in Analog Devices, June 25th, 2021

That latter two-thirds is “cyclical,” meaning, it also succumbs to economic trends, said Roche. But while he didn’t quantify the impact to such consumer chips, Roche pointed out that “our Consumer business continued to grow despite industry-wide weakness.”

The bottom line, then, for Analog Devices is having a better profile to its choice of products and markets, things that are part of building complex systems, such as factories and wireless infrastructure, and electric vehicles, and which don’t suddenly stop when economic times get rough.

I would note, too, one other thing that can easily be missed. Analog Devices’s revenue for the year ended last month was twelve billion dollars. The entire semiconductor market in 2021 was worth over half a trillion dollars, accord to the industry consortium, The World Semiconductor Trade Statistics.

What that means is that Analog Devices is equivalent to about two percent of the market’s total sales value in any given year. And so, the company simply isn’t exposed to the market to the same degree as, say Intel, with $64 billion in annual sales, or Qualcomm, with $40 billion in annual sales.