Analog Devices

(ADI) - Get Report

met analysts' fourth-quarter earnings expectations Tuesday, but warned that profit and sales could miss the consensus estimate in the fiscal first quarter.

Analog, which makes a variety of semiconductor products, posted a profit of 9 cents a share in the fourth quarter on sales of $456 million. A year earlier, the firm earned 6 cents a share on sales of $423 million.

Adjusting for acquisition-related and other special charges, Analog said it would have posted earnings of 16 cents a share, up from 14 cents last year. The results met analysts' consensus estimates, and the company slightly exceeded sales forecasts of $454 million.

"The last quarter of the year began in August with a seasonally slow order rate that improved in September and grew significantly in October for our analog and DSP products in both the distribution and OEM channel," said President and Chief Executive Jerald Fishman.

Fishman said during a conference call that orders were strong from its wireless, computer, automotive and high-end customers. Broadband and wireless infrastructure remained weak, however.

Looking ahead, Fishman said he expects sales to be flat in the first quarter of 2003, though he said some sequential growth is possible if the recent strength in orders continues. Analysts had called for sales to climb to $463 million in the first quarter. Fishman also said the company would post a profit of 16 cents a share in the first quarter, a penny below the Thomson Financial/First Call consensus estimate.

"Mindful of the still-volatile market conditions and because our first quarter includes a two-week holiday period for many of our customers, we are planning for revenues, gross margins and operating margins to be approximately flat in the first quarter," Fishman said, adding that he is expecting a seasonally strong second quarter.

During the fourth quarter, Analog spent $16 million on capital expenditures and $98 million on the repurchase of about 4.4 million shares. Before those costs, the firm had cash flow of $58 million.

Analog said inventory days ballooned to 135 days from 126 days in the quarter, indicating that it would take 135 days for the company to work through current inventory. Analysts have expressed concern about the high level of inventory, saying that it will restrict gross margin expansion in the next few quarters as the firm returns to its target of 100-110 days of inventory.

Other analysts say the firm may be forced to take a writedown as a result of the high stockpiles. Analog said it has taken adequate reserves to avoid a big charge. The company has been transferring production from older 4-inch wafer fabs to newer 6- and 8-inch fabs, resulting in the higher levels of inventory.