Analog Devices delivers 3Q surprise

Analog Devices (NYSE: ADI) posted third quarter earnings of 30 cents a share Wednesday, beating First Call consensus by a penny. The semiconductor manufacturer cited an increase in orders for its results and was bullish on the fourth quarter.

Revenue of $379 million for the third quarter of fiscal 1999 was up 28 percent from the prior year's third quarter. Earnings of $54.6 million, or 30 cents a share, compared to $26.4 million, or 16 cents a share, in the year-ago quarter.

Shares in the Norwood, Massachusetts-based company closed at 46 3/4 Tuesday, just shy of their 52-week high of 51. Analog Devices manufactures integrated circuits used in analog and digital signal processing applications. The company also beat estimates in its second quarter, and is one of many recent semiconductor success stories.

"Orders increased sequentially in every region of the world, in both the Original Equipment Manufacturer, or OEM, and distribution channels," said Jerald G. Fishman, President and CEO in a company statement.

The communications market also made up a substantial portion of ADI's third-quarter growth, and the industrial market continued its recovery, led by increased revenues in ATE, or automatic test equipment, components in both the U.S. and Japan. Sales to PC and consumer customers also grew during the third quarter, according to a company release. Analog IC, or integrated circuit, revenues increased 8 percent sequentially, while revenue for DSP, or digital signal processor, grew 85 percent compared to the same period last year.

Gross margin improved sequentially by 160 basis points to nearly 50 percent of sales, as did operating profit, which grew to $67 million or 17.6 percent of sales, up from 15.5 percent last quarter. ADI's backlog also increased by over $50 million during the quarter.

The company's balance sheet also strengthened, with capital expenditures totaling $20 million, or about 5 percent of sales, and inventories down by $4 million sequentially. Cash increased by $118 million to more than $635 million, and the company said it anticipates cash flow remaining strong for the rest of the year.

Fishman was bullish on the upcoming fourth quarter, citing a higher backlog, increased order visibility and a good tone of business in most regions of the world as engines for fourth- quarter revenues in the range of $405 to $410 million.