Analog Devices
Inc. (ADI) reported second quarter 2013 earnings of 50
cents per share, missing the Zacks Consensus Estimate of 52 cents.
Adjusted earnings per share exclude one-time items but include
stock-based compensation expense.
Revenues
Analog Devices generated revenues
of $659.3 million, up 6.0% sequentially but down 2.3% year over
year. The sequential growth was within management’s guidance of
4–8% increase and was driven by the strength in industrial and
automotive segments.
In the last quarter, total end
customer orders, which include both OEM and distribution, was up
sequentially. Also, the book-to-bill ratio was slightly above
unity.
Geographically, orders improved
across all regions, with particular strengths in North America and
Europe.
Revenues by End
Market
The industrial
market generated 47% of Analog Devices’ total revenue (up 11.0%
sequentially but down 4.0% year over year). This is a diversified
market for Analog Devices, including the industrial automation,
instrumentation, energy, defense and healthcare segments.
Management expects the industrial
end market to register strong growth in the third quarter as order
rates have been improving and inventory levels remain low.
The automotive
segment generated around 19% of Analog Devices’ second quarter
revenues, up 14.0% sequentially and 3.0% from the year-ago quarter.
Strong vehicles demand in North America and China and growth in
worldwide luxury vehicle led to solid automotive revenues in the
last quarter. The growing electronic content in vehicles remained a
positive, with demand for products like driver assistance and
powertrain efficiency systems remaining strong.
Communications
generated 19% of total revenue, down 2.0% both sequentially as well
as 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 leading
phone makers, such as Samsung and Apple (AAPL),
focus more on 4G and LTE. Analog Devices has offerings for both
traditional and 4G networks and therefore stands to gain from
demand ramp. 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 clubbed with the computing and handset
businesses, was down 6.0% sequentially and 5% year over year. It
accounted for 15% of total second quarter revenues.
Revenues by Product
Line
On a sequential basis, revenues
increased across all product lines, except in the other analog
products. On the contrary, revenues decreased across all product
lines on a year-over-year basis, except in converters.
Analog signal processing products
(85% of total revenue) were up 5.0% sequentially but down 2.0% year
over year. Converters were up 9.0% sequentially and 1.0% year over
year. Amplifier revenues increased 4.0% sequentially and declined
7.0% year over year. Other analog products were down 4.0%
sequentially but up 2.0% from year-ago quarters.
Power management and reference
products remained at roughly 7% of revenues, up 11.0% sequentially
but down 5.0% 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 product line.
Digital Signal Processing (DSPs)
(9% of total revenue) was up 11.0% sequentially but down 6.0% from
the year-ago level.
Margins
Reported gross margin for the
quarter was 64.0%, up 130 basis points (bps) sequentially but down
120 bps year over year. The primary reason for the sequential
increase in gross margin was attributable to higher factory
utilization and lower manufacturing costs.
Analog reported operating expenses
of $230.8 million, up 1.5% from $227.5 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 29.0% compared with 31.5% in the year-ago quarter.
Net Profit
On a GAAP basis, Analog recorded a
net profit of $164.5 million or 52 cents per share compared with
$162.9 million or 53 cents per share in the year-ago quarter.
Analog generated adjusted net
profit of $156.7 million compared with $162.1 million in the
year-ago quarter. Pro forma earnings per share came in at 50 cents
compared with 53 cents in the last quarter.
Balance Sheet
Analog exited the second quarter
with cash and short-term investments of approximately $4.17
billion, up from $3.99 billion in the prior quarter. Trade
receivables were $333.9 million, up from $329.6 million in the
prior quarter.
Cash generated from operations was
around $252.2 million. Analog Devices spent $26.2 million on capex,
$104.4 million on cash dividends and $4.5 million on share
repurchases in the last quarter.
During the quarter, the company
announced that its board of directors has declared a cash dividend
of 34 cents per outstanding share of common stock. The dividend
will be paid on Jun 11, 2013 to all shareholders of record at the
close of business on May 31, 2013.
Guidance
Management expects third quarter
revenues to be in the range of $655 to $685 million, up 1.6%
sequentially but lower than analyst expectations of $688 million.
The company estimates gross margin to be 64.5%, operating expenses
of around $226 million, a tax rate of 16.5% and earnings per share
of 51–56 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.
Given these positives, it is not
surprising that the revenue guidance was up sequentially but below
analyst expectations. 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 Magnachip Semiconductor (MX)
and Microchip Technology (MCHP), both with a Zacks
Rank #2 (Buy).
APPLE INC (AAPL): Free Stock Analysis Report
ANALOG DEVICES (ADI): Free Stock Analysis Report
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