Analog Devices Earnings: Fifth Straight Quarter of Shrinking Margins as Net Income Falls

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S&P 500 (NYSE:SPY) component Analog Devices Inc. (NYSE:ADI) reported its results for the fourth quarter. Analog Devices designs, manufactures, and markets analog, mixed-signal, and digital signal processing integrated circuits used in industrial, communication, computer, and consumer applications.

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Analog Devices Inc. Earnings Cheat Sheet

Results: Net income for the semiconductors-analog and mixed fell to $179.2 million (58 cents per share) vs. $183.5 million (60 cents per share) a year earlier. This is a decline of 2.4% from the year-earlier quarter.

Revenue: Fell 3% to $695 million from the year-earlier quarter.

Actual vs. Wall St. Expectations: Analog Devices Inc. beat the mean analyst estimate of 57 cents per share. It beat the average revenue estimate of $665.7 million.

Quoting Management: “ADI delivered solid results for the fourth quarter, with revenue increasing by 2% and diluted EPS increasing by 4% compared to the prior quarter,” said Jerald G. Fishman, CEO. “For the year, revenue decreased 9.8% to about $2.7 billion, reflecting difficult economic conditions and prevailing global uncertainty. We nevertheless generated 65% gross margins, 31% operating margins and over $800 million, or 30% of revenue, in cash from operations for the year.” Mr. Fishman continued, “Overall orders decreased during the quarter as customers became more cautious and continued to reduce inventories, in many cases to historically low levels. As a result, we began reducing our production levels in the fourth quarter and will reduce them further in the first quarter of fiscal 2013 to keep our inventory at appropriate levels. While this will reduce gross margins in the short term, we believe this should provide significant operating leverage when growth resumes.”

Key Stats:

Last quarter marked the fifth straight quarter that the company saw shrinking gross margins, as gross margin fell 0.5 percentage point to 63.8% from the year-earlier quarter. In that span, margins have contracted an average of 2.1 percentage points per quarter on a year-over-year basis.

For four consecutive quarters, revenue has fallen. Revenue declined 9.9% to $683 million in the third quarter. The figure fell 14.6% in the second quarter from the year earlier and dropped 11% in the first quarter from the year-ago quarter.

The company beat estimates last quarter after being in line with expectations in the third quarter with net income of 56 cents per share.

Net income has dropped 22.7% year-over-year on average across the last five quarters. Performance was hurt by a 37.2% decline in the first quarter from the year-earlier quarter.

Looking Forward: The outlook for the company’s next-quarter performance is unfavorable. Estimates have gone down from an average 56 cents per share to 54 cents over the past seven days. The average estimate for the fiscal year is $2.13 per share, a rise from $2.12 ninety days ago.

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(Company fundamentals provided by Xignite Financials. Earnings estimates provided by Zacks)

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