Analog Devices' Fourth Quarter Looks Light

Chip maker Analog Devices ( ADI) met Street expectations for sales and profits in the third quarter but said earnings in its current period were likely to fall short.

For the third quarter ended Aug. 3, ADI said its revenues rose 8% sequentially to $445 million, just above analyst expectations. Net income of $31 million amounted to GAAP earnings of 8 cents per share, up from 4 cents in the prior quarter.

The company reported pro forma EPS of 15 cents, in line with consensus estimates, according to Thomson Financial/First Call.

For the fourth quarter, the company predicted sales will rise modestly from currently levels to a range of $450 to $460 million. Gross margins are expected to improve, while operating expenses should increase only nominally, resulting in earnings per share of about 16 cents, 2 cents below the current consensus estimate.

In the third quarter, ADI took a charge of $16.6 million for amortization of intangibles and other acquisition-related expenses, and another $16 million charge related to restructuring and impaired assets.

Gross margins were 54%, up 60 basis points from last quarter and 110 points from last year.

CEO Jerald Fishman said he believed that the company's high-performance analog and digital signal processor lines outgrew the overall chip industry in the third quarter. Sequential revenues rose 6% and 17%, respectively, for those product lines.

Analog products account for nearly fourth-fifths of the company's total sales, while DSPs contributed the remaining fifth.

Regionally, sales were strongest in Japan and Southeast Asia, with consumer and communications applications helping drive growth.

In a statement, Fishman boasted that ADI is "one of the very few companies that is operating today at revenues well above early 1999 levels" and said he believes the company has gained market share in the current cycle. "As the end markets turn up ? and there is increasing evidence that they are doing so, albeit slowly ? we are well positioned to continue to outperform the semiconductor market as we have over the past four years," he said.

He added that analog and DSP products are "likely to be the highest growth categories in the semiconductor market as signal processing technology drives the highest growth end markets."

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