Analog Devices Inc.
) reported third quarter 2013 earnings of 57 cents per share,
exceeding the Zacks Consensus Estimate of 54 cents. The increase
was driven by strong revenue growth coupled with better gross
margins and solid expense management.
Adjusted earnings per share exclude one-time items but include
stock-based compensation expense.
Analog Devices generated revenues of $674.2 million, up 2.3%
sequentially but down 1.3% year over year. The revenues were at
the higher end of management's guidance of $655 million to $685
million, driven by the strength in communications and industrial
Total end customer orders, which include both original
equipment manufacturer (OEM) and distribution, were up
sequentially. Also, the book-to-bill ratio was one.
Revenues by End Market
market generated 47% of Analog Devices' total revenue (up 1.0%
sequentially but down 3.0% year over year). This is a diversified
market for Analog Devices, including the industrial automation,
instrumentation, energy, defense and healthcare segments.
Management expects the industrial end market to register
strong growth in the fourth quarter as order rates have improved
but inventory levels remain low.
generated 21% of total revenue, up 12.0% sequentially and 1% year
over year. The improvement came from the wireless infrastructure
sub-segment as China launched the last phase of its 3G TDS CDMA
network build out which led carriers in the U.S. to move toward
densification of the 4G LTE networks. Analog Devices has
offerings for both traditional and 4G networks and therefore
stands to gain from demand ramp. Operators in China and the U.S.
have declared their intent to increase 4G LTE deployments in
2014. Additionally, it has higher content in the 4G segment,
which, along with its position at leading OEMs, should remain a
positive factor influencing revenue growth.
segment generated around 18% of Analog Devices' third quarter
revenues, down 2.0% sequentially but up 5.0% from the year-ago
quarter. Though the company did not perform well in the last
quarter, management believes that growth in worldwide luxury
vehicle will lead to solid automotive revenues in the near term.
The growing electronic content in vehicles will remain a
positive, with demand for products like driver assistance and
powertrain efficiency systems remaining strong.
segment, which Analog Devices clubbed with the computing and
handset businesses, was down 1.0% sequentially and 6% year over
year. It accounted for 15% of total third quarter revenue.
Revenues by Product Line
On a sequential basis, revenues increased across all product
lines, except in the other analog products, which were flat
sequentially. On the contrary, revenues decreased across all
product lines on a year-over-year basis, except in
Analog signal processing products (85% of total revenue) were
up 2.0% sequentially but down 1.0% year over year. Converters
were up 1.0% sequentially and 2.0% year over year. Amplifier
revenues increased 4.0% sequentially but declined 5.0% year over
year. Other analog products were flat sequentially but down 6.0%
from year-ago quarters.
Power management and reference products remained at roughly 7%
of revenues, up 5.0% sequentially but flat compared with the
year-ago quarter. These products are generally sold in the
consumer/computing markets. Management has refocused the business
over the last few years to concentrate on this fast-growing
Digital Signal Processing (DSPs) (9% of total revenue) was up
2.0% sequentially but down 1.0% from the year-ago level.
Reported gross margin for the quarter was 64.5%, up 50 basis
points (bps) sequentially but down 110 bps year over year. The
primary reason for the sequential increase in gross margin was
attributable to higher factory utilization and lower
Analog reported operating expenses of $226.7 million, down
3.7% from $235.4 million incurred in the year-ago quarter.
Research and development expense increased as a percentage of
sales, while selling, general and administrative costs decreased
from the year-ago quarter. The net result was a GAAP operating
margin of 30.9% compared with 31.1% in the year-ago quarter.
On a GAAP basis, Analog Devices recorded a net profit of
$176.2 million or 56 cents per share compared with $169.8 million
or 56 cents per share in the year-ago quarter.
The company generated adjusted net profit of $179.7 million
compared with $198.0 million in the year-ago quarter. Pro forma
earnings per share came in at 57 cents compared with 56 cents in
the last quarter.
Analog Devices exited the third quarter with cash and
short-term investments of approximately $4.45 billion, up from
$4.17 billion in the prior quarter. Trade receivables were $345.4
million, up from $333.9 million in the prior quarter.
Cash generated from operations was around $220 million. Analog
Devices spent $30.1 million on capex and $104.9 million on cash
The company did not make any share repurchases in the last
During the quarter, the company declared a cash dividend of 34
cents per share to be paid on Sep 11, 2013, to all shareholders
of record at the close of business on Aug 30, 2013.
Management expects fourth-quarter revenues in the range of
$675 million to $700 million, up 2.0% sequentially. The company
estimates gross margin to be 65.0%, operating expenses to
increase by approximately 1%, tax rate in the range of 14%-15%
and earnings per share of 55 cents-61 cents.
Analog Devices has a significant percentage of its revenues
coming from the industrial and Communication markets, both of
which are expected to see strong demand in the near term due to
an improved demand environment. The increased 3G and 4G
deployments in most regions and healthy order rates expected in
the industrial market are quite encouraging.
Given these positives, it is not surprising that the revenue
guidance was up sequentially. However, with continued uncertainty
in key markets, the shares may remain range bound in the near
Currently, Analog Devices has a Zacks Rank #3 (Hold). Other
stocks that are performing well at current levels include
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