|
|
|
|
||
Analog Devices Continues to Experience Soft Demand; Shares at a Premium to $98 FVE Analog Devices Continues to Experience Soft Demand; Shares at a Premium to $98 FVE Brian Colello Sector Director Morningstar Analog Devices reported soft fiscal fourth-quarter results as it wrapped up a year defined by ongoing demand uncertainty that has plagued the entire semiconductor industry. Nevertheless, we believe the long-term prospects of ADI to be more attractive than fiscal 2019 would suggest, as it is poised to benefit from rising content in 5G infrastructure and autos. Though it is unclear when U.S.-China trade tensions or weak automotive demand will dissipate, we maintain our $98 fair value estimate for wide-moat ADI under the assumption that they won't have a lasting, long-term effect. With shares trading at a premium, we would wait for a wider margin of safety before investing. Revenue for the quarter of $1.44 billion represented a 6% year-over-year decline as all segments experienced softness. In the quarter, industrial was flat year over year, despite continued strength in aerospace/defense and healthcare. Communications was down 19% year over year due to a pause in spending and a loss of business from Huawei, but the firm anticipates a “pretty big uptick” in this notoriously lumpy business segment in the April quarter. The automotive segment was down 8% year over year, consistent with a slump in global auto sales, though the firm's battery management business continued its double-digit growth trajectory. Adjusted gross margins for the quarter were 68.4%, down 250 basis points year over year with a 140-basis-point headwind associated with the write-off of some chip inventory built for Huawei, in light of the U.S. government's ban on the Chinese networking maker. Looking ahead to fiscal 2020, management is expecting continued demand softness in the first quarter across all markets, with 5G demand potentially picking up in the second quarter. Given soft expectations, the midpoint of the firm's revenue guidance, $1.3 billion, would represent a 15% year-over-year decline. |
return to message board, top of board |