Analog Devices defies Wall Street predictions to boost FQ1 earning by 40 percent

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Analog Device is withdrawing its FQ2 outlook amid the coronavirus pandemic.
Image: Analog Devices

Analog Devices, Inc. (ADI) defined Wall Street’s expectations for the fiscal first-quarter by improving its earnings by 40 percent year-over-year. The company experienced double-digit growth across all of its target markets and overcame challenges like losing a prominent client.

The corporation forecasts bringing in record revenue in the current period despite the global semiconductor shortage.

The chipmaker also intends to expand its business in the long-term by facilitating the multisector digitalization trend.

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Outstanding FQ1 2021 Performance

In the three months ending January 30, ADI made $1.55 billion with adjusted earnings per share (EPS) of $1.44. Those figures are considerably better than the $1.30 billion and $1.03 EPS it reported in the same timeframe last year. Its intake also exceeded market analysts’ projections of $1.51 billion in sales against EPS of $1.32.

CFO Prashanth Mahendra-Rajah said the corporation’s expectation-defying performance came from substantial growth across all businesses. The firm’s core industrial segment bettered its revenue generation by 24 percent year-over-year, while its automotive unit expanded its earnings by 19 percent. And its wireless income increased by double digits despite ending its relationship with Huawei last fall.

CEO Vincent Roche indicated the post-pandemic digitalization trend acted as a growth driver for the company. It saw strong demand from manufacturers looking to automate their factories using its electronic components. Its automobile offerings also sold well last periods because of the mounting popularity of electric vehicles.

Roche explained the societal push to make life more ecologically sound augmented its income. He commented that the corporation’s energy-efficient products appealed to a broad range of businesses, like data center providers looking to reduce their carbon footprints.

Record Revenue Predicted for FQ2

Despite the intense volatility of the semiconductor market, ADI anticipates setting a new quarterly revenue record in FQ2 2021. It forecasts $1.55 billion to $1.60 billion in gross income with EPS between $1.36 and $1.44. By comparison, it made $1.32 billion against EPS of $1.08 last year. Wall Street assumes the company will take in $1.55 billion in sales and profits of 1.39 per share.

The firm believes the digitalization initiative that fueled its growth in FQ1 will continue in the current period.

It also predicts the current global semiconductor crunch will not seriously undercut its earnings capability. Since last summer, the company has been stockpiling inventory, which helped it minimize the crisis’s impact on its lead times.

The chipmaker utilizes a hybrid production model built around internal and outsourced silicon fabrication. That enabled it to avoid the problems currently facing fabless providers that rely entirely on overseas foundries.

That said, Roche acknowledged the company does not have sufficient supply to meet demand, especially from its automotive clients. It also noted its lead times for some items had been extended due to the chip crunch. The supplier presumes the problem will not be resolved right away as it sees production capacity being constrained through 2021.

Positive Long-Term Outlook

On a more positive note, ADI had a positive long-term outlook for the future.

It anticipates its acquisition of Maxim Integrated will close this summer, which will boost its income before year’s end. The company also expects an uptick in demand for its 5G products in the back half of this year. Further out, it hopes the surge in automation and industrial end-market will persist through 2022.

As a single corporation, ADI can only do so much to compensate for the component industry’s instability. But its portfolio and business model are strong enough to help it endure the difficulties of the latest sector-wide crisis.

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