Analog Devices
(ADI) reported first-quarter 2013 earnings of 44 cents per share,
in line with the Zacks Consensus Estimate. Adjusted earnings per
share exclude one-time items, but include stock-based compensation
expense.
Revenues
Analog Devices generated revenues
of $622.1 million, down 10.0% sequentially and 4.0% year over year
and at the lower end of the management’s revenue guidance range of
$612-$653 million (a 6%-12% sequential decline).
Revenues by End
Market
The industrial
market generated 45% of Analog Devices’ total revenue (down 8.0%
sequentially and 3.0% year over year). This is a 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.
Management expects the industrial
end market to register strong growth in the second quarter as order
rates have been improving since early January.
Communications
generated 20% of total revenue, down 12.0% sequentially but up 2.0%
year over year. The decline was broad based, with the largest
sequential decrease coming from the wireless infrastructure
sub-segment. Though the market performed poorly in the last
quarter, management expects the business to improve, as there is
great focus on 4G and LTE by leading phone makers, such as Samsung
and Apple (AAPL). 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.
The Consumer
segment, which Analog clubs with the computing and handset
businesses, was down 22.0% sequentially and 6% year over year, due
to seasonality.
The automotive
segment generated around 17% of Analog Devices’ first quarter
revenues, down 3.0% sequentially and 11.0% from the year-ago
quarter. Sluggish demand in Europe due to weaker sales affected
Analog’s automotive revenues 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 strong.
Revenues by Product
Line
The sequential and year-over-year
decline in revenues was broad-based across product lines.
Analog signal processing products
(85% of total revenue) were down 11.0% sequentially and 3.0% year
over year. Converters were down 10.0% sequentially and 3.0% year
over year. Amplifier revenues declined 10.0% sequentially and 4.0%
year over year. Other analog products were down 15.0% and 1.0% from
the previous and year-ago quarters, respectively.
Power management and reference
products remained at roughly 6% of revenues, down 14.0%
sequentially and 12.0% 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 product line.
Digital Signal Processing (DSPs)
(8% of total revenue) were down 10.0% sequentially and 4.0% from
the year-ago level.
Margins
Reported gross margin for the
quarter was 62.7%, down 110 basis points (bps) sequentially and 50
bps year over year. The primary reason for the gross margin decline
was the change in sales mix, which favored lower-margin products in
the last quarter.
Analog reported operating expenses
of $222.8.0 million, down 0.3% from $223.4 million incurred in the
year-ago quarter. Research and development and selling, general and
administrative costs, were both up as a percentage of sales from
the year-ago quarters. The net result was a GAAP operating margin
of 24.7% compared with 28.3% in the year-ago quarter.
Net Profit
On a GAAP basis, Analog recorded a
net profit of $131.2 million or 42 cents per share compared with
$139.4 million or 46 cents per share in the year-ago quarter.
Analog generated adjusted net
profit of $136.5 million compared with$140.5 million in the
year-ago quarter. Pro-forma earnings per share came in at 44 cents,
compared with 46 cents in the last quarter.
Balance Sheet
Analog exited the first quarter
with cash and short-term investments of approximately $3.99
billion, up from $3.90 billion in the prior quarter. Trade
receivables were $329.6 million, down from $339.9 million in the
prior quarter.
Cash generated from operations was
around $158.0 million. Analog Devices spent $18.3 million on capex,
$90.7 million on cash dividends and $17.0 million on share
repurchases in the last quarter.
During the quarter, the company
announced that its board of directors has approved a 13% increase
in its regular quarterly dividend, from $0.30 to $0.34 30 cents to
34 cents per outstanding share of common stock. The dividend will
be paid on Mar 12, 2013, to all shareholders of record at the close
of business on as of Mar 1, 2013.
Guidance
Management expects second-quarter
revenues to increase 4%–8% sequentially with a gross margin of 64%,
operating expenses of around $224 million, a tax rate of 17% and
EPS of 49–55 cents.
Our Take
Analog Devices has a significant
percentage of its revenues coming from the industrial and
automotive markets, both of which are expected to see strong demand
in the near term due to an improved demand environment and healthy
order rates expected in the industrial market. The dividend hike
was also quite encouraging in the last quarter.
Given these positives, it is not
surprising that the revenue guidance was up sequentially but below
the consensus expectations of $666 million. However, with continued
uncertainty in key markets, the shares may remain range bound in
the near term.
Currently, Analog has a Zacks Rank
#3 (Hold). Other stocks that have been performing well and are
worth a look include Autodesk Inc. (ADSK) and
Netflix Inc. (NFLX), both with a Zacks Rank #2
(Buy).
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