) fiscal fourth quarter earnings beat the Zacks Consensus
Estimate by a penny. Revenue fell short of expectations however.
The top line softness and disappointing guidance had shares
slumping 2.77% in after-hours trading.
Analog Devices generated revenue of $695.0 million, which was
up 1.7% sequentially, down 3.0% year over year and just within
management's revenue guidance range of $685-$715 million (a 0-5%
Revenue by End Market
market generated 44% of Analog Devices' total revenue (down 5.5%
sequentially and 3.0% year over year). This is a very diversified
market for Analog Devices, including the industrial automation,
instrumentation, energy, defense and healthcare segments.
Management optimism gave way in the last quarter, as the macro
weakness had Analog's industrial customers (both distribution and
OEM) cutting inventories and orders. Europe and Japan were the
weakest for Analog. Defense, aerospace and medical
instrumentation product lines were flat sequentially, but offset
by declines across the process control, instrumentation,
measurement and medical imaging product lines.
generated 20% of total revenue, up 3.8% sequentially and 1.1%
year over year. Analog's communications business now constitutes
infrastructure sales alone. This business should continue on an
uptrend as there is great focus on 4G and LTE by leading phone
makers, such as Samsung and
Additionally, infrastructure buildouts in emerging continues
demand for its legacy products. Analog Devices has offerings for
both the traditional and 4G networks, so it stands to gain when
there is any increase in demand. Additionally, it has higher
content in the 4G segment, which along with its position at
leading OEMs should remain a positive factor influencing revenue
, which Analog clubs with the computing and handset businesses,
grew a very strong 26.4% in the last quarter to 20% of revenue.
This was still 7.4% below the level generated a year ago. The
sequential increase was on driven by some Analog customers
building inventories of new products. Therefore, a sharp decline
in the next quarter may be expected.
segment generated around 16% of Analog Devices' fourth quarter
revenue, down 3.9% sequentially and 2.0% from the year-ago
quarter. Sluggish demand in Europe due to weaker sales and more
factory shut-downs impacted Analog's automotive revenue in the
last quarter. The growing electronic content in vehicles remained
a positive however, with demand for products like driver
assistance and powertrain efficiency systems remaining
Revenue by Product Line
The year-over-year decline in revenue was broad-based across
product lines. The other analog category was again the only one
posting any substantial increase.
Analog signal processing products (85% of total revenue) were
up 2.6% sequentially and down 2.2% year over year. Converters
were up 2.6% sequentially while declining 5.0% year over year.
Amplifier revenue declined 3.5% sequentially and 4.5% year over
year. Other analog products jumped 14.1% and 10.9% from the
previous and year-ago quarters, respectively.
Power management and reference products remained at roughly 7%
of revenue, flat sequentially and down 13.8% from the year-ago
quarter. These products are generally sold into the
consumer/computing markets. Management has refocused the business
over the last few years to concentrate on this fast-growing
DSPs (8% of total revenue) were down 6.0% sequentially and
consistent with the year-ago level.
Analog Devices generated a pro forma gross margin of 63.8%,
down 179 basis points (bps) sequentially, 52 bps year over year
and short of management's gross margin guidance of 65%. The
primary reason for the gross margin decline was the change in
sales mix, which favored lower-margin products in the last
quarter. However, management also decided to reduce production to
align inventories with demand, which had the utilization rate
dropping from 74% in the July quarter to 67% in the last
Operating expenses of $228.0 million were down 3.1%
sequentially and 1.2% from the October quarter of 2011. Special
charges related to restructuring activity were absent in the last
quarter, despite which however the operating margin shrunk 13 bps
sequentially and 188 bps year over year to 31.0%.
The pro forma net income was $179.2 million, or a 25.8% net
income margin compared to $169.8 million, or 24.9% in the
previous quarter and $183.5 million, or a 25.6% net income margin
in the year-ago quarter. The fully diluted pro forma earnings per
share were 58 cents compared to 56 cents in the previous quarter
and 60 cents in the October quarter of last year.
Since there were no one-time items in any of the quarters, the
GAAP and non GAAP net income and EPS were same.
Inventories increased 0.5% to $339.9 million, with annualized
inventory turns going up from 3.0X to 3.2X. Days sales
outstanding (DSOs) dropped from 46 to around 45. Cash generated
from operations was around $236.0 million. Analog Devices spent
$37.5 million on capex, $91.4 million on cash dividends and $20.8
million on share repurchases in the last quarter.
Management expects first quarter revenue of $612-$653 million
(a 6-12% sequential decline) with a gross margin of 62%,
operating expenses of around $223 million, a tax rate of 18% and
diluted EPS of 40-48 cents. Analysts polled by Zacks expected
earnings of 54 cents a share when Analog Devices reported, well
above the guided range.
Analog Devices has a significant percentage of its revenue
coming from the industrial and automotive markets, both of which
are expected to remain sluggish in the near term as macro
concerns continue to weigh on its customers. Additionally, the
company is now expecting a sharp reduction in its consumer
revenue, which will make matters worse.
Given these negatives, it is not surprising that the guidance
was again below expectations. With continued uncertainty in key
markets and the weak guidance, estimates are likely to track
lower. This should keep the Zacks Rank at #4 (Sell). In fact,
companies with industrial and automotive focus are unlikely to do
very well in this environment, for instance,
), which also has a Zacks Rank of #4.
ANALOG DEVICES (ADI): Free Stock Analysis
To read this article on Zacks.com click here.