It was nightly business conversations at his parents’ dinner table that first led Prashanth Mahendra-Rajah to consider alternatives to business when it came to building a career.
“As most small business owners do, my parents worked all the time—and as with most small businesses, things could at times be financially challenging,” explains Mahendra-Rajah, who vividly recalls rent increases, outstanding receivables, and the dynamics behind supply and demand that pervaded his parents’ dinner conversations.
Nevertheless, it was this same scrutiny of supply-and-demand dynamics that Mahendra-Rajah credits with helping him to eventually “come full circle”—ultimately pointing him to business school.Read More
At the time, Mahendra-Rajah was working full-time as a senior process engineer for chemical giant FMC Corp., a career-building stint that afforded him the real-world insights required to enrich a master’s thesis that he needed in order to complete a chemical engineering master’s degree from Johns Hopkins.
“It was my first job out of college, and the plant manager’s M.O. was to always beat me up and demand more cost reductions and better process yields,” recalls Mahendra-Rajah, who notes that his immersion into the business side of manufacturing quickly escalated when FMC received a large order for a synthetic that the company no longer manufactured.
“I was given the task of refurbishing an old factory and getting it up and running in a matter of weeks,” remembers Mahendra-Rajah, who adds that the production of the once-discontinued synthetic led the plant manager’s mind-set to suddenly pivot.
“He was pushing me to spend as fast as I could. I was told not to negotiate with suppliers, and if I needed overtime for the maintenance workers, to ‘go for it’—schedule was paramount, cost was secondary,” explains the career finance leader, who credits the experience with helping him to open a door that he had once shut.
Says Mahendra-Rajah: “It kind of brought me back to the table with Mom and Dad and made me realize how so much of our world is really driven by supply and demand and how finance is the oil in the gears.” –Jack Sweeney
CFOTL: Tell us about ADI … what sets it apart from its competitors today?
Mahendra-Rajah: We are a semiconductor company about 55 years old and just north of $6 billion in revenue, just shy of a $60 billion market cap. We are innovators, and that’s the core of what we do. We spend significantly on R&D. Just under 20% of sales goes to R&D, and it’s this R&D spend that creates sort of a virtuous cycle of highly innovative products, which we then sell to a broad set of customers, who then reward us for them with industry-leading margins, which we then convert into very strong cash flow. Our free cash flow yield is among the top 10% of the S&P 500.
I would say that one of the key strengths of the business is our diversity. Our customer base is really quite broad. We have over 125,000 customers, and our portfolio of products is 45,000-plus and growing every year. This creates a real sustainable differentiation for ADI and a barrier to entry. We work across many markets, the big ones being the industrial, automotive, communications, and consumer spaces.Read More
We are very passionate—and I do mean this sincerely—about our mission to “engineer good,” as we call it. This really is the use of our technology to make a positive impact on the world around us. I think that I am the fourth CFO in the company’s history, and it’s a great privilege to be part of this team.
…Being a technology company, there is an abundance of data that we work with. It’s very native to how we think. But when I think about metrics and the metrics into which the finance organization drives visibility, what I think about is the behaviors that we are trying to change in the organization and then how to adapt these metrics over time to get the right behaviors that we want out of the organization.
If I rewind to when I started at ADI, the metric (focus) was about encouraging the organization to prioritize how they spent those R&D dollars. Therefore we introduced a very understandable concept of flat op ex, which means that every year, as part of the planning cycle, we expect you to have your spending flat, year-over-year. This doesn’t mean that we don’t want to hear your great ideas.
It does mean that when you bring forward these great ideas about where you want to invest for new products, we also want to hear what are you going to stop doing in order to fund this. This created a loop of accountability in a somewhat constrained environment where we still needed the best ideas to keep bubbling to the top.
Now we’re transitioning into a new era for the company, as we’re hoping to close on a major transaction here in the coming months with the purchase of Maxim. What we are now beginning to message to the organization is around free cash flow. In particular, our goal is to go from the 36% free cash flow with which we just closed the past quarter to 40%—and we have a path to get there.
So, now we are ensuring that the organization has visibility into what the drivers are that they have control over to create operating leverage that will lift this free cash flow to 40% and move us from being in the top 10% of the S&P 500 to the top 5% in terms of free cash flow yield.
Analog Devices, Inc. | www.analog.com | San Jose, CA