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Analog Devices: Momentum Could Carry Forward

The company reported better-than-expected earnings and expects double-digit revenue growth

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Dec 02, 2021
Summary
  • Analog Devices reported better-than-expected earnings for the fiscal fourth quarter.
  • The automotive segment had a strong quarter despite the chip shortage, which is a promising sign.
  • The company expects double-digit revenue growth across all business sectors in 2022.
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Analog Devices, Inc. (

ADI, Financial) is a United States-based global semiconductor company that designs, manufactures and markets high-performance analog, mixed-signal and digital signal processing integrated circuits. The company's product lines include industrial process control systems, medical imaging equipment, manufacturing process automation systems, patient vital sign monitoring devices, measurement systems, wireless infrastructure equipment and various other signal processing devices.

Earnings recap

The company released its fiscal fourth-quarter earnings on Nov. 23, and its numbers for the most recent quarter indicate that the company is moving in the right direction. Analog Devices reported earnings of $1.73 per share against $1.70 per share expected by analysts. Outstanding performance in the consumer, industrial and automotive markets drove this strong quarterly performance, and the company seems to be well-positioned to carry this momentum into the next quarter as well.

Analog Devices reported $2.34 billion in revenue, a 52.9% increase year-over-year. The industrial segment generated $1.2 billion in revenue, accounting for 50% of total revenue and up 45% year-over-year. The company’s industrial business continues to profit from the widespread digitalization drive across industries as sensing, edge processing and connectivity have become important for making supply chains more durable, efficient and adaptable.

Last August, Analog Devices acquired Maxim Integrated as well, which is another leading semiconductor manufacturer, and this has bolstered the industry products portfolio of the company.

The automotive segment had a strong quarter despite the chip shortage, generating revenue of $452.6 million, accounting for 19% of total revenue. This was an improvement of more than 97% from the corresponding quarter last year. This growth was driven by the increased adoption of electric vehicles and automakers’ focus on providing an improved in-vehicle experience to customers. Analog Devices is known for its expertise in developing cutting-edge wired and wireless battery management systems that provide the highest levels of accuracy, reliability and safety, as well as the ability to scale across all battery chemistries.

Because Maxim is now a part of the company, Analog Devices now sells to seven of the top 10 electric vehicle manufacturers in the world, which goes on to show the scale advantages enjoyed by the company today. Additionally, automakers are improving the in-cabin experience, which has boosted the demand for Analog’s market-leading audio systems with signal processing, A2B connectivity and active road noise cancellation. The in-cabin connection products from Maxim now include its industry-leading GMSL brand, which paints a promising picture of what the future holds for Analog Devices from the automotive segment.

The communications segment generated revenue of $351.6 million, accounting for 15% of total revenue. However, the growth of this segment was affected by the wireless market's weakness in China. On the other hand, the consumer segment generated revenue of $356.9 million, reflecting 107% year-over-year growth. The company's strategic decision to diversify customers, products and applications, as well as the addition of Maxim's power, audio and sensing capabilities, and the release of new applications such as fast charging and gaming, drove this triple-digit growth.

Analog Devices had $1.98 billion in cash and cash equivalents as of Oct. 30 and the company returned $2.5 billion to shareholders in the most recent quarter - $371 million in dividend payments and $2.1 billion in stock repurchases. The company continues to focus on allocating capital efficiently to focus on future growth opportunities while distributing income to shareholders in a way that maximizes the total returns of investors.

The outlook remains positive

Pandemic-related closures last year led to a scarcity of chips that has hurt many businesses, including automakers, consumer electronics manufacturers and many other industries that depend on high-quality semiconductors. Analog Devices suffered from these supply chain issues as well but is now making a strong comeback. In fiscal 2022, the company expects double-digit revenue growth across all business sectors thanks to a healthy pipeline of products, continued broad-based demand and supply-side improvements.

For the first quarter of fiscal 2022, Analog Devices estimates it will achieve revenue of $2.60 billion and non-GAAP earnings of $1.78 per share. The company’s growth is projected to be fueled by the ongoing digital transformation of the industrial value chain in the coming years. Other things to keep an eye on are the rising popularity of electric vehicles, the growing relevance of renewable energy and the introduction of 5G technology. The company expects 5G will gain traction globally in 2022, particularly in North America.

Analog Devices is a global leader in wireless technology, having recently delivered the industry's first software-defined radio transceiver with a fully integrated digital front end. The company is well-positioned to monetize its leading position in 5G-related chips with this next-generation transceiver technology in the future, which should boost corporate earnings. Furthermore, the company’s signal processing solutions, which include wearables, professional audio, video and power management solutions, have a solid pipeline of products, which is likely to ensure double-digit growth for its consumer business.

Analog Devices had a strong quarter amid improving macroeconomic conditions, and the demand for its products is likely to remain at an elevated level in the coming years because of the important role they play in the digitalization efforts carried out by many companies around the world.

Disclosures

I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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