Analog Devices
Briefing.com - February 22, 2007 8:50 AM ET
In the fourth quarter, Analog Devices (ADI, 33.32) suffered from a broad inventory glut in semiconductors as decelerating demand caused a buildup in customer inventories. While still not out of the woods quite yet, ADI posted a sequential increase in revenues as orders began strengthening again in January.
ADI's analog, mixed-signal, and digital signal processing (DSP) integrated circuits (IC) are the foundations of virtually every type of electronic product, from digital cameras to LCDs and factory automation equipment. There were a lot of moving parts to the first quarter impacting revenues and earnings.
Net of a royalty payment, revenues of $656 mln came in slightly ahead of the street's expectations of $652 mln. ADI benefited from several one-time factors, including an extra week, a $35 mln royalty payment, an investment gain, and a lower share count. Proforma earnings exclusive of all gains were $0.40 per share - a penny worse than consensus estimates.
Margins remain a concern not just in the quarter but looking ahead as well, given expected product mix, utilization rates and operating expenditures. Gross margins declined on a yearly and sequential basis to 59.0%. Looking ahead, ADI's forecasts were not as bad as some may have expected given its transition from a 14-week first quarter to a 13-week second.
The company sees second quarter EPS of $0.37-$0.42 per share with the mid-point below consensus estimates of $0.39. It anticipates a mid-single digit sequential decline in revenues to $640-$670 mln, versus consensus of $655.1 mln.
Expectations have been tempered for all the analog related names including Texas Instruments (TXN, 30.98), Linear Technology (LLTC, 31.80), and National Semiconductor (NSM, 23.65) due to an inventory burn-off. Even though most suggested a pick up in January bookings, concerns lingered over the sustainability of the bounce back. But ADI indicated bookings strength has continued into February, reporting backlog up 8% sequentially and a book-to-bill of over 1, suggesting an inflection point.
While we wouldn't be getting aggressive on the name just yet, we think the skies are becoming a bit brighter. We would be watching for further confirmations of a sustainable trend. And while its long-term secular growth prospects remain strong, margin pressure remains a key risk. The stock trades at 20.1x forward earnings, compared to LLTC at 22.6x and Maxim Integrated (MXIM) at 24.6x.
--Kimberly DuBord, Briefing.com |
