Investors have high expectations for Analog Devices (ADI) - Get Analog Devices, Inc. Report going into its upcoming earnings report. The semiconductor company is scheduled to report its fiscal third-quarter results before the market open on Wednesday.

With the acquisition of Linear Technology, Analog Devices has become a monster semiconductor supplier. The company competes in every segment of the semi market, including automotive, industrial, consumer, and communications.

The Linear Tech merger expanded the company's total addressable market to $14 billion from $8 billion. The merged company will dominate the data converter and RF/microwave space. In power management, amplifiers and interface semiconductors, Analog Devices is the second-largest provider in the world.

The combined company will have a gross margin of 69% and a 38% operating margin vs. 62% and 23%, respectively, for Intel (INTC) - Get Intel Corporation (INTC) Report . Analog/Linear will also have free-cash flow of $1.7 billion and a free-cash flow margin of 31%.

Management projects a free-cash flow margin of 34% over 12 months, which means Analog/Linear would surpass at least eight other semiconductor makers. The board of directors has focused on returning cash to shareholders, with a long-term target of returning 80% of its free cash flow through dividends and share repurchases.

At the June analyst meeting, management said its consumer segment would post a 20% decline in revenue for fiscal 2018 (fiscal years end in October). Analysts believe Apple (AAPL) - Get Apple Inc. (AAPL) Report designed ADI's Force Touch product out of the new iPhone, but management pointed out the Linear deal has already been accretive, adding 15% to earnings, about $1 billion in incremental revenue by fiscal 2019 and will produce $250 million in cost savings by 2022. Those benefits should far outweigh the potential loss of the Apple business. Last quarter, the consumer segment was approximately 21% of total revenue.

Analog Devices' industrial and automotive segments are poised to grow faster. According to management, by 2025, the company will have doubled its semiconductor content in automobiles to $600 per car with the addition of new technologies, such as lidar/radar, and possibly widespread autonomous vehicle adoption.

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Industrial markets, such as factory automation and robotics are expected to grow at twice the rate of GDP growth. Last quarter, the industrial and automotive segment accounted for approximately 61% of total revenue.

Analysts are looking for third-quarter revenue of $1.4 billion and earnings of $1.15 per share. For the full year, the consensus sees EPS of $4.37 and revenue of $5.04 billion. Assuming the world economy continues to grow, revenue would be up 12.7% in fiscal 2018 as the combined company begins to experience the full benefits of the Linear Technology merger.

Back in December I thought the company's valuation was pretty low for such a high-quality semiconductor maker. I believe investors will begin to look forward to next year when Analog is expected to earn $4.63 per share. Margins should widen over the next few quarters as Linear's higher levels pull the average corporate margin toward 69%.

If you assume Wall Street EPS estimates for fiscal 2018 are likely to creep up toward $5.00 next year, ADI can trade in the mid-$90s.

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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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