Analog Devices lowers expectations

Analog Devices lowered its financial targets for the second quarter and the full year, but don't worry too much, analysts said Thursday.

After market close Thursday, the maker of integrated circuits for computers and communications devices said it now expects second-quarter earnings of 43 cents to 44 cents per share, on revenue of $710 million to $725 million. Analog Devices (NYSE: ADI) sees a 2001 profit of $1.85 to $1.90 per share.

Analyst consensus was predicting profits of 49 cents per share for the quarter ending in April and $2.02 per share for the full year, according to earnings tracking firm First Call.

Executives from Analog Devices expect 2001 revenue growth of about 20 percent from last year's $2.58 billion.

Considering the rash of warnings from companies in the technology and communications sectors, Analog Devices' forecast could have been much worse, analysts said.

"The guidance was not dramatically bad, compared to others," said John Geraghty, analyst with Gerard Klauer Mattison. "It was better than I expected."

Shares of Analog Devices traded at $49.50 in after-hours activity on the Island ECN, immediately following the release of quarterly results. Analog Devices rose 55 cents to $51.51 in Thursday's regular trading ahead of the news.

"I don't expect the stock to react too much," said analyst Eric Ross, with Thomas Weisel Partners. "It's just a two-quarter slowdown, and then it's back to the races."

During a Thursday afternoon conference call with analysts, Analog Devices executives said customers are pointing to a rebound in the second half of the year.

Analog Devices reported fiscal first-quarter net income of $190.2 million, or 50 cents per share, on revenue of $772 million. Analyst consensus predicted a profit of 50 cents per share on revenue of $773.8 million, according to First Call.

Revenue was also slightly below the company's own lowered forecast; last month Analog Devices predicted first-quarter sales of $775 million.

Sales of analog products increased 1 percent sequentially in the first quarter, though the amount sold through distributors fell 9 percent. Analog sales to communications equipment manufacturers rose 10 percent from the fourth quarter.

Analog Devices has more than 40 percent of the market for data converters and high-performance amplifiers, Fishman said.

Digital signal processor sales fell 18 percent sequentially, because of cancellations and inventory adjustments from customers in North America and southeast Asia, Fishman said.

First-quarter gross margin of 58.6 percent was about the same as the previous quarter. That's a testament to Analog Devices' ability to let its partners absorb much of the demand slump, said Cody Acree, analyst with Frost Securities. "ADI's fabs are still fully utilized, so it's keep gross margins up," he said.

The company couldn't have done much to avoid a slump, analysts said.

"It's not simply ADI, it's the industry," said Acree, who has a "strong buy" rating on the stock. "I think ADI is handling it better than most."

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