Analog Devices’ (ADI) fiscal second quarter
earnings beat the Zacks Consensus Estimate by a couple of cents.
Revenue exceeded the consensus by 1.4%.
Revenue
Analog Devices generated revenue of $675.1 million, which was up
4.2% sequentially, down 14.6% year over year and just over
management’s revenue guidance range of $655-$675 million (a 1-4%
sequential increase).
Revenue by End Market
The industrial market generated 48% of Analog
Devices’ total revenue (up 11.8% sequentially and down 16.4% year
over year). This is a very diversified market for Analog Devices,
including the industrial automation, instrumentation, energy,
defense and healthcare segments.While each sub-segment grew in the
last quarter, instrumentation and energy were up over 20% each.
The strong sequential performance is partly on account of
positive seasonality and partly driven by improving market
conditions, as customer inventories dropped to satisfactory levels,
enabling Analog to ship to consumption.
Communications generated 19% of total revenue,
up 2.5% sequentially and down 22.3% year over year. Analog Devices’
communications business now constitutes infrastructure sales alone.
Management attributed the sequential increase to both wireline and
wireless customers that were prompted by growing data volumes,
although growth rates remained low due to the back-end loaded
quarter and continued economy-related concerns.
Consumer, which now includes the computing (1%
of fiscal 2011 revenue) and handset (3% of fiscal 2011 revenue)
businesses, generated 16% of revenue, down 7.6% sequentially and
20.2% from a year ago. Here too, orders started strengthening
toward the end of the quarter, indicating improving trends that
should lead to stronger revenues going forward. Analog stated that
strong design in at key consumer OEMs would support this
growth.
The automotive segment generated around 17% of
Analog Devices’ second quarter revenue, down 0.9% sequentially and
up 10.1% from the year-ago quarter. The increase in vehicle sales,
growing electronic content in vehicles and growing dollar content
per vehicle for Analog helped sales in the last quarter.
Revenue by Product Line
The year-over-year decline in revenue was more or less
broad-based across product lines, with only the digital signal
processing (DSP) products saying flat. On the other hand, all
except the other analog category increased sequentially.
Analog signal processing products (84% of total revenue) were up
4.2% sequentially and down 15.7% year over year. Converters and
amplifiers were up 5.2% and 8.1%, respectively on a sequential
basis, while declining 14.3% and 16.6%, respectively from last
year.
Other analog products were down 5.7% from the previous quarter
and 18.2% from the year-ago quarter. The three product lines
generated 44%, 26% and 13% of quarterly revenue, respectively.
Power management and reference products remained at roughly 7%
of revenue, up 2.7% and down 17.9%, respectively from the previous
and year-ago quarters. These products are generally sold into the
consumer market. Management has refocused the business over the
last few years to concentrate on this fast-growing product
line.
DSPs (9% of total revenue) were up 5.3% sequentially and flat
year over year.
Margins
Analog Devices generated a pro forma gross margin of 65.2%, up
207 basis points (bps) sequentially, down 231 bps year over year
and better than management’s guidance of 64-64.5%. Both utilization
and a stronger mix of high-margin industrial and communications
infrastructure products were responsible for the sequential
increase. The decline from the year-ago quarter was mainly on
account of significantly lower volumes.
Operating expenses of $227.5 million were flattish sequentially
and down 3.5% from the April quarter of 2011. As a result, the
operating margin expanded 324 bps sequentially even as it shrunk
621 bps year over year to 31.5%.
Lower cost of sales was the main reason for the sequential
increase in margin, although both R&D and SG&A also
declined as a percentage of sales. However, all expenses were up
significantly as a percentage of sales from the year-ago quarter
with SG&A increasing somewhat less than the others.
Net Profit
The pro forma net income was $162.9 million, or a 24.1% net
income margin compared to $139.4 million, or 21.5% in the previous
quarter and $245.3 million, or a 31.0% net income margin in the
year-ago quarter. The fully diluted pro forma earnings per share
were 53 cents compared to 46 cents in the previous quarter and 79
cents in the April 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.
Balance Sheet
Inventories increased 2.2% to $303.7 million, with annualized
inventory turns dropping sequentially from 3.2X to 3.1X. Days sales
outstanding (DSOs) inched up to a little less than 45. Cash
generated from operations was around $226.0 million. Analog Devices
spent $30.1 million on capex, $24.2 million on acquisitions, $89.4
million on cash dividends and $44.0 million on share repurchases in
the last quarter.
Guidance
Management expects third quarter revenue of $682-$702 million (a
1-4% sequential increase) with the gross margin to increase 50 bps,
operating expenses of around $231 million and diluted EPS of 54-58
cents. Analysts polled by Zacks expected earnings of 58 cents a
share when Analog Devices reported, at the high end of the guided
range.
Our Take
Given improving order trends in the back half of the quarter and
historic low lead times, Analog expects most end markets to turn
around in the current quarter. Channel inventories also appear
lean, meaning that the company is now shipping to consumption.
However, we detect caution at communications customers, which could
mean slower revenue growth in the segment.
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 investor sentiments to remain low, since
analysts are likely to lower their earnings estimates to reflect
the guidance, thereby strengthening the Zacks Rank of #4 on Analog
shares, which implies a Sell rating over the next 1-3 months.
We note that other analog peers, such as Texas
Instruments (TXN) and Linear Technology
Corp (LLTC) bear a Zacks Rank of #3 (short-term
Hold), while Maxim Integrated Products (MXIM) is
currently ranked #2 (short-term Buy).
ANALOG DEVICES (ADI): Free Stock Analysis Report
LINEAR TEC CORP (LLTC): Free Stock Analysis Report
MAXIM INTG PDTS (MXIM): Free Stock Analysis Report
TEXAS INSTRS (TXN): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
Analog Devices (NASDAQ:ADI)
Historical Stock Chart
Von Jun 2024 bis Jul 2024
Analog Devices (NASDAQ:ADI)
Historical Stock Chart
Von Jul 2023 bis Jul 2024