) fiscal third quarter earnings were in line with the Zacks
Consensus Estimate. However, revenue fell short of
Analog Devices generated revenue of $683.0 million, which was up
1.2% sequentially but down 9.9% year over year and just within
management's revenue guidance range of $682 million to $702 million
(a 1% -4 % sequential increase).
Revenue by End Market
market generated 47% of Analog Devices' total revenue (down 0.4%
sequentially and 11.4% year over year). This is a very diversified
market for Analog Devices, including the industrial automation,
instrumentation, energy, defense and healthcare segments. Demand
from distribution was relatively steady right through the quarter,
with order patterns strengthening slightly toward the end. Analog's
customers do not expect further deterioration in their
generated 20% of total revenue, up 9.2% sequentially but down 9.0%
year over year. Analog's communications business now constitutes
infrastructure sales alone. Management attributed the sequential
increase to strength at wireless customers driven by baseband
deployment in the U.S., Japan and other Asian countries. 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 growth.
segment generated around 17% of Analog Devices' second quarter
revenue, down 2.8% sequentially and up 13.0% from the year-ago
quarter. Sluggish demand in Europe impacted results in the last
quarter. However, an increase in vehicle sales, growing electronic
content in vehicles and growing dollar content per vehicle remain
, which includes the computing (1% of fiscal 2011 revenue) and
handset (3% of fiscal 2011 revenue) businesses, generated 16% of
revenue, up 0.8% sequentially and down 23.2% from a year ago. The
weak point here was digital cameras, with growth in portable media
supported by other segments (home entertainment and computing),
which came in flat. The positive was strong order growth, which
grew the backlog and resulted in a book to bill ratio of over
Revenue by Product Line
The year-over-year decline in revenue was broad-based across
product lines. The "Other" analog category was the only one posting
any substantial increase.
Analog signal processing products (85% of total revenue) were up
1.5% sequentially and down 10.4% year over year. Converters were
rather flat sequentially while declining 11.2% year over year.
Amplifiers, on the other hand, grew slightly (1.8%) on a sequential
basis, while declining 8.4% from last year. Other analog products
jumped 8.2% from the previous quarter, but remained 7.9% below the
year-ago level. The three product lines generated 44%, 27% and 14%
of quarterly revenue, respectively.
Power management and reference products remained at roughly 7%
of revenue, down 1.4% and 17.3% from the previous and year-ago
quarters, respectively. These products are generally sold in the
consumer market. Management has refocused the business over the
last few years to concentrate on this fast-growing product
DSPs (9% of total revenue) were down 2.6% sequentially and 4.4%
year over year.
Analog Devices generated a pro forma gross margin of 65.6%, up
33 basis points (bps) sequentially, down 167 bps year over year and
short of management's guidance of a 50 bp sequential increase. The
sequential improvement was on account of slightly better
utilization rates. The decline from the year-ago quarter was mainly
on account of significantly lower volumes. Mix was relatively
neutral to both the sequential and year-over-year comparisons.
Operating expenses of $235.4 million were up 3.5% sequentially
and 2.0% from the July quarter of 2011. Special charges related to
restructuring activity were $5.8 million in the last quarter, which
was the main reason for the operating margin shrinking 43 bps
sequentially and 568 bps year over year to 31.1%.
The pro forma net income was $169.8 million, or a 24.9% net
income margin compared to $162.9 million or 24.1% in the previous
quarter and $219.9 million or a 29.0% in the year-ago quarter. The
fully diluted pro forma earnings per share were 56 cents, compared
to 53 cents in the previous quarter and 71 cents in the July
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 the same.
Inventories increased 2.7% to $345.8 million, with annualized
inventory turns dropping sequentially from 3.1X to 3.0X. Days sales
outstanding (DSOs) inched up to 46. Cash generated from operations
was around $137.7 million. Analog Devices spent $39.2 million on
capex, $89.5 million on cash dividends and $17.3 million on share
repurchases in the last quarter.
Management expects fourth quarter revenue of $685 million
to $715 million (a 0-5% sequential increase) with the gross margin
of 65%, operating expenses of around $231 million and diluted EPS
of 54 cents to 60 cents. Analysts polled by Zacks expected earnings
of 60 cents per share when Analog Devices reported, at the high end
of the guided range.
Given improving order trends toward the end of the quarter and
historic low lead times, Analog Devices expects most end markets to
turn around in the current quarter. Channel inventories also appear
lean, meaning that the company is shipping to consumption.
Despite the positive commentary, guidance was again below our
expectations likely reflecting conservatism. Particularly so, since
Analog's end markets appear to be looking up. Nevertheless,
we expect some fine-tuning of estimates, which should keep the
company a Zacks #3 Rank (Hold rating over the next 1-3 months).
We note that other analog peers, such as
Maxim Integrated Products
) are also ranked #3 (short-term Hold).
ANALOG DEVICES (ADI): Free Stock Analysis
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