Analog Devices (ADI): Consumer Advice May Be Lower than Estimated | So Good News


Economic downturn

Andrew Johnson

Analog Devices (NASDAQ: ADI) reports fourth-quarter results and fiscal 2022 on Nov. 22, 2022. Revenue was $3.25 billion (+38.8% YOY), a hit of $90 million, and Q4 Non-GAAP EPS of $2.73 a hit of $0.14.

According to Seeking Alpha tracking of calling, Chris CiacciaSA News Editor, said:

Following the results, investment firm Credit Suisse questioned whether the company was “running away” from the downturn that affected the rest of the industry or whether it was unaffected.

“Since we haven’t seen a cycle in which industrial/analog retailers have avoided the downside, we think it’s the end,” analyst Chris Caso wrote to clients.

I also ask for guidance, but I want to deal with the consumer sector, since I have written a lot on Demand Alpha the effect of the reduction in demand for consumer goods and its effect on Micron (MU).

On ADI’s earnings call, CEO Vincent Roche said:

“Our Industrial, Automotive and Communications markets delivered consistently high revenue, and our Consumer business continued to grow despite the industry’s weakness.”

Indeed, Table 1 shows a strong YoY growth of 38.8% for total revenue but only 15.4% for the Consumer segment. But QoQ earnings show a slowdown in growth. Total income grew only 4.4% and Consumer only 1.7%.

Analog Devices' money is finally here


CFO Prashanth Mahendra-Rajah’s guidance was particularly negative for FQ1 2022, when he said:

“Not surprisingly, bookings remain strong in Industrial and Auto, while Communications and Consumer are weak. We are guiding first quarter revenue to $3.15 billion, plus or minus $100 million.

So in the first quarter, we expect Auto to rise slightly sequentially; Industrial flats; Comms down with numbers in the middle of one; and Consumer being the lowest two digits in a row. “

In Chart 1, I plot ADI’s earnings data for the period from FQ1 2021 to Q1 2023, the last quarter based on guidance. Here we see a decrease in total revenue (blue line) starting in FQ2 2021 ending April 2021. Although the guidance shows a slight change in the Industrial, Automotive, and Communication sectors, the impact will come from the Consumer sector (red line).

Analog Devices' income in terms of end products

The Information Network

Chart 1

Mahendra-Rajah continued:

“Consumer represents 13% of our quarterly revenue and has grown slowly and steadily year after year. Despite a difficult year for many companies, Consumer has completed 8%. This growth is proof of how we have transformed our Consumer business with the innovation capabilities that we command. Today, about 30% of revenue comes from prosumer long-life applications, including next-generation social media, professional AV and home theater, while the remaining Consumer spending is tied to fast-growing wearables and smart phones.”

ADI’s Position in the Analog Chip Market

How big are Analog Devices? Table 2 shows the top 5 Analog Chip companies by revenue for 2018-2021. Texas Instruments (TXN) generated the largest analog chip revenue at $14.1 billion followed by ADI at $8.4 billion. This means that ADI will share 11.3% of the $74.1 billion global analog market in 2021.

Top 5 analog companies

The Information Network

Chart 2 shows the average revenue for each company. ADI completed the acquisition of analog company Maxim Integrated Products in 2021, increasing its share of the analog market. ADI also acquired Linear Technology in 2017.

Top 5 analog companies

The Information Network

Figure 2

Investor Takeaway

With the Federal Reserve still behind, with interest rates at 4% due to high inflation, currently 7.7%, the length of the drop is not clear. Consumer confidence has increased as gasoline prices have fallen, along with inflation, but that will change as winter sets in, and heating oil and natural gas prices rise.

Consumer user guides don’t go well with many of the growth in other sectors, especially high-end phones and conferencing systems.

Samsung Electronics (OTCPK:SSNLF) is revising its forecast for smartphone sales in 2023. Although the giant had set a target of 300 million units sold next year, its analysts considered this figure too optimistic and lowered it to 260 million, 10 million. less than 2022.

Also, according to Strategy Analytics:

“We forecast global smartphone shipments to decline -9% to -10% YoY throughout 2022. Global issues, recession, energy shortages, inflation, exchange rate volatility, and COVID disruptions will continue to dampen consumer demand during the crisis. the last quarter of 2022.”

I wrote in Nov. 14, 2022, Exploring Alpha’s article titled “Micron: Even the Best Technology Won’t Help Until 2024:”

“Driven by the increase in the number of consumers followed by the difficulties of obtaining epidemics, the memory industry has always traveled a new direction that began in Q1 2021 and ended in Q2 2022. The fear that reduced the demand for electronic products that consumers buy.”

Memory companies are responding with capex cuts:

  • Micron indicated that it will reduce 2023 capex by 30%, which includes 50% equipment and 50% construction, which would mean a 15% cut in equipment. But MU is reducing its purchases of WFE equipment by 50% in 2023, which has a major impact on the company’s equipment suppliers.
  • SK Hynix (OTC:HXSCL) announced in late October that it plans to cut its expenses next year by more than 50%.% due to the lack of demand in the memory chip business. The move comes after the company’s third-quarter profit fell to 1.7 trillion ($1.2 billion), missing analysts’ estimates of 1.87 trillion won. Money is down 7% up to 11 trillion won.

And led by ADI’s consumer adoption of the “next-generation social network,” one can only look at Zoom Video ( ZM ), which saw its share price drop 63.1% year-over-year. In its latest earnings call, Zoom said in its fourth fiscal quarter, it expects to earn between 75 cents and 78 cents per share, on revenue ranging from $1.095B to $1.105B. Those estimates missed analysts’ forecasts of 81 cents in earnings per share of $1.115B.

My opinion on ADI’s guidance, based on results, guidance, and forecasts from other companies with products in the consumer electronics sector, is that it is higher than I expected. However, the company is strong, and I rate the company Hold.


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