Analog Devices Raises Estimates for Fourth Quarter 2005 and Describes Plans for Manufacturing, Stock-Based Compensation and Other Items.

NORWOOD, Mass. -- Analog Devices, Inc. (NYSE: ADI):

--ADI estimates 6% sequential revenue growth for the fourth quarter of fiscal 2005;

--Consolidation of manufacturing operations estimated to save approximately $45 million per year, results in approximately $50 million of total charges

--Stock-based compensation lowered to 2.3% dilution for 2006 and accelerated vesting of "out of the money" options reduces the impact of stock-based compensation on EPS to $0.03 to $0.04 per quarter;

--Organizational changes estimated to save approximately $16 million per year, result in approximately $13 million of total charges

--Repatriation of accumulated foreign earnings results in $49 million tax charge in the fourth quarter of fiscal 2005

With the 2005 fiscal year ending on October 29, 2005, Analog Devices, Inc. (NYSE: ADI) today raised revenue guidance for the fourth quarter and described its fiscal 2006 plans to consolidate global manufacturing, reduce earnings dilution from stock-based compensation, and return a portion of foreign earnings to the U.S.

ADI Estimates 6% Revenue Growth in Fourth Quarter of Fiscal 2005

ADI estimates that revenue in the fourth quarter of fiscal 2005 will grow approximately 6% compared to the third quarter of fiscal 2005, which is higher than planned at the beginning of the quarter. Sales of both analog and digital signal processing (DSP) products are expected to increase in the fourth quarter compared to the third quarter of fiscal 2005. Gross margin for the fourth quarter is estimated to increase slightly compared to the gross margin of 58.1% reported in the third quarter of fiscal 2005. The company will report results for the fourth quarter, which ends October 29, 2005, on November 15, 2005 at 4:00pm ET.

ADI Plans Consolidation of Wafer Fabrication Operations

ADI plans to consolidate its wafer fabrication operations. As a result, ADI plans to close its California wafer fab operations and transfer production to its two largest facilities located in Massachusetts and Ireland which feature the company's most advanced process technologies. When completed by the end of fiscal year 2006, the consolidation is estimated to result in savings of approximately $45 million per year.

"Our California-based manufacturing operation has been one of ADI's most productive organizations, due largely to the dedication and talent of the staff. However, because of the size and limited expansion potential in Sunnyvale, we have decided to focus our investments in our other facilities," said Jerald G. Fishman, president and CEO of Analog Devices, Inc.

"By focusing our capital investments in our largest and most advanced facilities, we expect to not only improve the cost effectiveness, but also expand the capacity of our global manufacturing infrastructure to support our long-term growth objectives," said Mr. Fishman. "Our new global manufacturing infrastructure will allow us to increase our investments in value-enhancing analog process technologies while simultaneously lowering our manufacturing costs. The new infrastructure will still allow us to double our global wafer production capacity with relatively small increases in capital equipment spending."

ADI has asked the production teams in Sunnyvale and Santa Clara, California, to stay on with the company for the next year to assure a successful migration of the products to their new manufacturing locations. ADI expects the teams will complete the transfer by the end of fiscal 2006.

This transfer will result in approximately $50 million of charges over the course of the next twelve months. Approximately $23 million of these charges are for employee-related costs, of which approximately $20 million will be recorded in the fourth quarter of fiscal 2005. An additional $22 million will be recorded as a non-cash charge for accelerated depreciation and charged to manufacturing expense during fiscal 2006. The remaining costs, which include clean-up and lease termination costs, will be charged to expense as they are incurred during fiscal 2006. As a result, the company plans to take charges of approximately $20 million in the fourth quarter of fiscal 2005, approximately $6 million in each of the first, second and third quarters of fiscal 2006, and approximately $12 million in the fourth quarter of fiscal 2006.

Board of Directors Establishes 2.3% Target on Dilution from Stock Compensation for Fiscal 2006 and Accelerates Employee Stock Options, Excluding Officers and Directors

The ADI Board of Directors has decided to reduce the dilution, net of estimated cancellations, related to the company's stock-based compensation programs to approximately 2.3% of outstanding shares for fiscal 2006. ADI granted stock options, net of actual cancellations by employees, equal to approximately 2.8% of shares outstanding in fiscal 2005 and 3.0% of shares outstanding in fiscal 2004.

In addition, the Board accelerated the vesting of certain existing "out-of-the-money" stock options that have exercise prices per share of $40.00 or higher and were granted to employees, excluding corporate officers and directors, after December 31, 2000. Options to purchase approximately 18 million shares of ADI stock became exercisable today as a result of this acceleration. These options have exercise prices ranging from $40.00 to $59.20 per share and, based on today's closing price of $33.19, are significantly "out of the money." With the company's adoption of Financial Accounting Standards Board Statement No. 123(R), "Share-Based Payment" (FAS 123 (R)), the approximately $188 million of future expense associated with these options would have been disproportionately high compared to the economic value of the options.

Under FAS 123(R), ADI will apply the expense recognition provisions relating to stock options beginning in the first quarter fiscal 2006, which ends January 28, 2006. In fiscal year 2006, the company estimates that the expense related to stock options will have an impact on diluted earnings per share of approximately $0.03 to $0.04 per quarter.

"Our stock option program is a broad-based, long-term employee retention program that is intended to attract, retain and motivate our employees, officers and directors and to align their interests with those of our shareholders," said Ray Stata, Chairman of the Board. "We believe the combination of reduced dilution and the acceleration of certain stock options is in the best interest of our shareholders as it will reduce the company's reported stock option compensation expense in future periods while continuing to offer a competitive compensation program to our employees."

Repatriation of $1,055 Million Results in Tax Charge of Approximately $49 Million

In order to take advantage of a temporary tax incentive for U.S. multinational corporations, the ADI Board of Directors has authorized the repatriation of $1,055 million of accumulated foreign earnings. Under current tax law, ADI has until October 29, 2005 to repatriate the earnings at a reduced effective tax rate. As a result of this action, the company will record an additional estimated tax expense of $49 million in the fourth quarter of fiscal year 2005.

Increased Focus Provides Future Leverage

ADI also announced that organizations throughout the company refined their product development and support programs with the goal of providing greater focus on our analog and DSP products. These organizational changes will save approximately $16 million per year once completed. The company will record charges of approximately $13 million of primarily severance related costs to accomplish this, most of which will be recorded in the fourth quarter of fiscal 2005.

Mr. Fishman summarized the actions by saying, "These decisions were taken to strengthen our global competitiveness and position ADI for significant earnings leverage as our sales continue to grow over the long term. High-performance analog and digital signal processing (DSP) technology continue to proliferate throughout virtually all types of electronic equipment, and the plans we announced today strengthen our ability to serve a broad diversity of customers in a wide range of industrial, consumer, computer and communications applications."

Safe harbor statement under the Private Securities Litigation Reform Act of 1995: This press release contains forward-looking statements, including our statements regarding planned revenue, earnings, and operating margins, that are based on our current expectations, beliefs, assumptions, estimates, forecasts, and projections about the industry and markets in which Analog Devices operates. The statements contained in this release are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed in such forward-looking statements, and such statements should not be relied upon as representing Analog Devices' expectations or beliefs as of any date subsequent to the date of this press release. Important factors that may affect future operating results include the effects of adverse changes in overall economic conditions, currency exchange rate fluctuations, the timing and duration of market upturns and downturns, the growth or contraction of the markets we serve, demand for semiconductors generally and for our products in particular, the risk that our backlog could decline significantly, our ability to hire engineers and other qualified employees needed to meet the expected demands of our customers, reversals or slowdowns in the markets or customers served by our products, the adverse effects of building inventories to meet planned growth that fails to materialize, the occurrence and frequency of inventory and lead-time reduction cycles, raw material availability, availability of both internal and external manufacturing capacity, technological and product development risks, competitors' actions and technological innovations, and other risk factors described in our most recent Form 10-Q for the fiscal quarter ended July 30, 2005, as filed with the Securities and Exchange Commission.