Analog Devices tops Q3 view, issues strong Q4 outlook

Aided by a 23% year-over- year gain in the Communication segment revenue, the fiscal 2016 third-quarter earnings and revenue of the semi-conductor manufacturing company Analog Devices, Inc. (NASDAQ: ADI) topped the Wall Street estimates. Based on the strong fourth-quarter revenue and earnings outlook, we predict the share price to remain upbeat. The stock of Analog Devices closed at $64.14 on Friday.

The Norwood, Massachusetts-based company reported third-quarter net income of $230.43 million or $0.74 per share on revenue of $869.59 million and beat the Zacks revenue estimate of $852.5 million.

The revenue increased 12% on a q-o-q basis and exceeded the company’s guidance in the range of $800 million to $840 million. Analog Devices, which holds 2,200 patents, recorded net income of $216.48 million or $0.68 per share on revenue of $863.37 million in the similar period last year. Apple, Inc. is one of the biggest customers of the microchip manufacturer.

Analog Devices, Inc.

The Industrial segment revenue of the 50-year old company dipped 3% y-o-y to $374.74 million. The Automotive segment revenue grew 3% y-o-y to $134.62 million. The Consumer segment revenue was $186.10 million, down 10% compared to last year. Finally, the Communications’ segment’s revenue jumped 23% to $174.14 million, from $142.01 million in the prior year’s similar quarter.

Excluding restructuring and acquisition charges, among others, the manufacturer of analog to digital converters posted Q3 earnings of $0.82 per share, up from $0.77 per share in the third-quarter last year. The Q3 2016 EPS surpassed the Wall Street estimates of $0.76 per share.

For the quarter ended July 2016, the free cash flow increased to $216.48 million, from $161.98 million in the quarter ended August, 2015.

The manufacturer of mixed signal control processors also gave a strong guidance for the fourth-quarter of fiscal 2016. Analog Devices anticipates fourth-quarter GAAP and non-GAAP revenue in the range of $910 million to $970 million. The GAAP EPS is expected to be between $0.78 and $0.88 per share. Analog Devices forecasts non-GAAP EPS in the range of $0.84 to $0.94 per share. The company also anticipates GAAP and non-GAAP gross margin to be 65.2% and 65.5% respectively.

The strong financial health of the company and the impressive fourth-quarter outlook makes us believe that the share price would remain bullish in the fourth-quarter of fiscal 2016.

The stock firmly broke the resistance of 57 in the second half of July. The stochastic reading of about 80 indicates that the share price may undergo a correction before resuming the uptrend.

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