Despite record sales in 2023, it reports that all its markets are in decline, and that it will halve its investment program initially planned for next year. This is hardly surprising, given that, with the exception of Nvidia, almost all semiconductor players are affected.

The slowdown is reflected in inventories which are up by 17%, while accounts receivable are down by the same amount. Although management anticipates a further two or three quarters of contraction, it remains more optimistic than the analyst consensus about opportunities in the automotive sector.

In 2023, Analog concludes an exceptional ten-year cycle. Sales have quintupled since 2013, from EUR2.6 billion to $12.3 billion this year. Annual free cash flow has quadrupled over the period. However, its profitability remains far below that of a direct comparable such as Texas Instruments, or that of equipment manufacturer Applied Materials.

The Group generated a cash profit of $3.5 billion over the year just ended, even with working capital requirements that did not yet reflect any signs of a slowdown in activity. It returned $3 billion to shareholders via share buybacks, and $1.7 billion via dividends.

It is noteworthy that, over the full cycle, Analog returned more capital to its shareholders than it generated in profits. This, together with the acquisition of Linear Technology in 2017, has naturally led to a rise in debt.

Despite a sensational stock market performance, it is worrying to observe how management has undertaken to accelerate share buybacks since 2020: $8.5 billion has been spent on share buybacks over the past three years, while cumulative cash profits over the period have reached $7.5 billion, and $4.3 billion has been paid out in dividends.

Above all, these share buy-backs were carried out at high valuation levels, i.e. between x25 and x35 operating profit, whereas the Group's more reasonable historical average valuation is more in the region of x15 operating profit.

At the end of a highly successful growth cycle, the risk of value destruction here seems impossible to ignore.