Analog Devices
Inc. (ADI) reported first-quarter 2014 earnings of 49
cents per share, which surpassed the Zacks Consensus Estimate by a
penny. Adjusted earnings per share exclude one-time items but
include stock-based compensation expenses.
Revenues
Analog Devices generated revenues
of $628.2 million, down 7.4% sequentially but up 1.0% year over
year. The revenues were slightly lower than the Zacks Consensus
Estimate of $629.0 million. Excluding the microphone business,
divested in the fourth quarter, revenues were up 5% year over
year.
Total end customer orders, which
include original equipment manufacturer (OEM) and distribution,
improved in the last quarter, led by the industrial communications
and automotive markets. The book-to-bill ratio was also above one.
Revenues by End
Market
The industrial
market generated 46% of Analog Devices’ total revenue (down 7.0%
sequentially but up 3.0% year over year). This is a diversified
market for Analog Devices, including the industrial automation,
instrumentation, energy, defense and healthcare segments. The
sequential decline was due to increased number of holidays in the
last quarter.
Communications
generated 22% of total revenue, flat sequentially but up 11.0% year
over year. The modest sequential growth in the wireless
infrastructure sub-segment driven by deployments in North America
and Asia was partially offset by inventory reductions at some
base-station customers, resulting in no sequential growth.
Encouraged by the decision of the
operators in China and the U.S. to increase their 4G LTE
deployments in 2014, management expects growth to resume in the
next year.
The automotive
segment generated around 20% of Analog Devices’ first-quarter
revenues, down 5.0% sequentially but up 15.0% from the year-ago
quarter. The sequential decline was due to seasonal production
breaks taken by the manufacturers of North America and Europe. The
year-over-year increase was due to strength in content and share
gains across all geographies.
Management continues to believe
that growth in worldwide luxury vehicle will lead to solid
automotive revenues in the near term. The growing electronic
content in vehicles will remain a positive, with demand for
products like driver assistance and powertrain efficiency systems
remaining strong.
The Consumer
segment, which Analog Devices clubbed with the computing and
handset businesses, was down 22.0% sequentially and 31.0% year over
year. It accounted for 12.0% of total first-quarter revenue.
Revenues by Product
Line
On a year-over-year basis, revenues
increased across all product lines, except in other analog and
power management & reference products. However, on a sequential
basis, the decline in revenues was broad-based across product
lines.
Total Analog signal processing
products revenue (91% of total revenue) was down 7.0% sequentially
but up 1.0% year over year. Converters were down 5.0% sequentially
but up 5.0% year over year. Amplifier revenues declined 7.0%
sequentially but increased 4.0% year over year. Other analog
products were down 14.0% sequentially and 17.0% from the year-ago
quarter.
Power management and reference
products contributed roughly 6% of revenues, down 12% sequentially
and 2.0% 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 down 7.0% sequentially but up 6.0% from
the year-ago level.
Margins
Reported gross margin for the
quarter was 65.1%, down 500 basis points (bps) sequentially but up
240 bps year over year. The reason for the sequential decrease in
gross margin was attributable to lower utilization rates and an
unfavorable mix.
Analog reported operating expenses
of $229.5 million, down 3.1% from $236.8 million incurred in the
year-ago quarter. Research & development expenses increased as
a percentage of sales from the year-ago quarter while selling,
marketing and general and administrative expenses declined. The net
result was a GAAP operating margin of 28.6%, up 390 bps from the
year-ago quarter of 24.7%.
Net Profit
On a GAAP basis, Analog Devices
recorded a net profit of $152.6 million or 48 cents per share
compared with $131.2 million or 42 cents per share in the year-ago
quarter.
The company generated adjusted net
profit of $155.8 million compared with $136.5 million in the
year-ago quarter. Pro-forma earnings came in at 49 cents per share
compared with 44 cents in the year-ago quarter.
Balance Sheet
AnalogDevices exited the first
quarter with cash and short-term investments of approximately $4.70
billion, up from $4.68 billion in the prior quarter. Trade
receivables were $328.1 million, up from $325.1 million in the
prior quarter.
Cash generated from operations was
around $157.5 million. Analog Devices spent $48.1 million on capex,
$89.0 million on share repurchases and $106.0 million on cash
dividends.
AnalogDevices has also announced
its decision to hike quarterly dividend by 3 cents to 37 cents per
share. This dividend will be paid on Mar 11, 2014 to all
shareholders of record at the close of business on Feb 28,
2014.
In addition, the company approved
the share repurchase authorization to $1 billion.
Guidance
Management expects second-quarter
2014 revenues in the range of $660 to $680 million. The Zacks
Consensus Estimate for second-quarter revenues is pegged at $665
million. The company estimates gross margin to increase 50 to 100
bps sequentially, operating expenses to increase approximately 2%,
tax rate to be approximately 13% and earnings per share in the
range of 54–58 cents. The Zacks Consensus Estimate for
second-quarter earnings is pegged at 55 cents.
Our Take
Analog Devices has a significant
percentage of its revenues coming from the industrial and
communication markets, both of which are expected to see strong
demand in 2014. The increased 3G and 4G deployments in China and
the U.S. will revive growth in these markets, going forward.
Management expects solid operating
leverage in the upcoming quarter on improving factory utilization
and a favorable mix of business. Also, the company witnessed strong
order momentum starting from January due to improvement in end
markets. Given these positives, it is not surprising that the
guidance for revenues and margins were up sequentially.
Also, the increase in dividend and
new share authorization program indicates that the company is
heading toward strong future growth. However, with continued
uncertainty in key markets, the shares may remain range-bound in
the near term.
Currently, Analog Devices has a
Zacks Rank #3 (Hold). Other stocks that are performing well at
current levels include M/A-Com Technology Solutions
Holdings, Inc. (MTSI), Maxlinear Inc.
(MXL) and Supertex Inc. (SUPX). All these stocks
sport a Zacks Rank #2 (Buy).
ANALOG DEVICES (ADI): Free Stock Analysis Report
MA-COM TECH SOL (MTSI): Free Stock Analysis Report
MAXLINEAR INC-A (MXL): Free Stock Analysis Report
SUPERTEX INC (SUPX): Free Stock Analysis Report
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