Analog Devices Inc.
) reported first-quarter 2014 earnings of 49 cents per share,
which surpassed the Zacks Consensus Estimate by a penny. Adjusted
earnings per share exclude one-time items but include stock-based
Analog Devices generated revenues of $628.2 million, down 7.4%
sequentially but up 1.0% year over year. The revenues were
slightly lower than the Zacks Consensus Estimate of $629.0
million. Excluding the microphone business, divested in the
fourth quarter, revenues were up 5% year over year.
Total end customer orders, which include original equipment
manufacturer (OEM) and distribution, improved in the last
quarter, led by the industrial communications and automotive
markets. The book-to-bill ratio was also above one.
Revenues by End Market
market generated 46% of Analog Devices' total revenue (down 7.0%
sequentially but up 3.0% year over year). This is a diversified
market for Analog Devices, including the industrial automation,
instrumentation, energy, defense and healthcare segments. The
sequential decline was due to increased number of holidays in the
generated 22% of total revenue, flat sequentially but up 11.0%
year over year. The modest sequential growth in the wireless
infrastructure sub-segment driven by deployments in North America
and Asia was partially offset by inventory reductions at some
base-station customers, resulting in no sequential growth.
Encouraged by the decision of the operators in China and the
U.S. to increase their 4G LTE deployments in 2014, management
expects growth to resume in the next year.
segment generated around 20% of Analog Devices' first-quarter
revenues, down 5.0% sequentially but up 15.0% from the year-ago
quarter. The sequential decline was due to seasonal production
breaks taken by the manufacturers of North America and Europe.
The year-over-year increase was due to strength in content and
share gains across all geographies.
Management continues to believe 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 22.0% sequentially and 31.0% year
over year. It accounted for 12.0% of total first-quarter
Revenues by Product Line
On a year-over-year basis, revenues increased across all
product lines, except in other analog and power management &
reference products. However, on a sequential basis, the decline
in revenues was broad-based across product lines.
Total Analog signal processing products revenue (91% of total
revenue) was down 7.0% sequentially but up 1.0% year over year.
Converters were down 5.0% sequentially but up 5.0% year over
year. Amplifier revenues declined 7.0% sequentially but increased
4.0% year over year. Other analog products were down 14.0%
sequentially and 17.0% from the year-ago quarter.
Power management and reference products contributed roughly 6%
of revenues, down 12% sequentially and 2.0% from 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
down 7.0% sequentially but up 6.0% from the year-ago level.
Reported gross margin for the quarter was 65.1%, down 500
basis points (bps) sequentially but up 240 bps year over year.
The reason for the sequential decrease in gross margin was
attributable to lower utilization rates and an unfavorable
Analog reported operating expenses of $229.5 million, down
3.1% from $236.8 million incurred in the year-ago quarter.
Research & development expenses increased as a percentage of
sales from the year-ago quarter while selling, marketing and
general and administrative expenses declined. The net result was
a GAAP operating margin of 28.6%, up 390 bps from the year-ago
quarter of 24.7%.
On a GAAP basis, Analog Devices recorded a net profit of
$152.6 million or 48 cents per share compared with $131.2 million
or 42 cents per share in the year-ago quarter.
The company generated adjusted net profit of $155.8 million
compared with $136.5 million in the year-ago quarter. Pro-forma
earnings came in at 49 cents per share compared with 44 cents in
the year-ago quarter.
AnalogDevices exited the first quarter with cash and
short-term investments of approximately $4.70 billion, up from
$4.68 billion in the prior quarter. Trade receivables were $328.1
million, up from $325.1 million in the prior quarter.
Cash generated from operations was around $157.5 million.
Analog Devices spent $48.1 million on capex, $89.0 million on
share repurchases and $106.0 million on cash dividends.
AnalogDevices has also announced its decision to hike
quarterly dividend by 3 cents to 37 cents per share. This
dividend will be paid on Mar 11, 2014 to all shareholders of
record at the close of business on Feb 28, 2014.
In addition, the company approved the share repurchase
authorization to $1 billion.
Management expects second-quarter 2014 revenues in the range
of $660 to $680 million. The Zacks Consensus Estimate for
second-quarter revenues is pegged at $665 million. The company
estimates gross margin to increase 50 to 100 bps sequentially,
operating expenses to increase approximately 2%, tax rate to be
approximately 13% and earnings per share in the range of 54-58
cents. The Zacks Consensus Estimate for second-quarter earnings
is pegged at 55 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 2014. The increased 3G
and 4G deployments in China and the U.S. will revive growth in
these markets, going forward.
Management expects solid operating leverage in the upcoming
quarter on improving factory utilization and a favorable mix of
business. Also, the company witnessed strong order momentum
starting from January due to improvement in end markets. Given
these positives, it is not surprising that the guidance for
revenues and margins were up sequentially.
Also, the increase in dividend and new share authorization
program indicates that the company is heading toward strong
future growth. However, with continued uncertainty in key
markets, the shares may remain range-bound in the near term.
Currently, Analog Devices has a Zacks Rank #3 (Hold). Other
stocks that are performing well at current levels include
M/A-Com Technology Solutions Holdings, Inc.
). All these stocks sport a Zacks Rank #2 (Buy).
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