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Analog Devices

(ADI) - Get Free Report

raised revenue guidance for the fourth quarter and said it plans to consolidate global manufacturing operations.

ADI said late Wednesday that fourth-quarter revenue will grow about 6% sequentially from the third quarter, which is higher than planned at the beginning of the quarter. Sales of both analog and digital signal processing products are expected to increase, and gross margin for the fourth quarter is estimated to increase slightly compared with the 58.1% reported in the third quarter.

The company posted third-quarter revenue of $582.4 million; sequential growth of 6% would result in a fourth-quarter top line of $617.3 million. A Thomson First Call analyst survey had expected the company would post revenue of $599 million.

Following the report, shares of ADI rose more than 6% in after-hours trading to $35.27 on Instinet.

ADI said it plans to consolidate its wafer fabrication operations, which will result in closing its California operations and transferring production to its two largest facilities located in Massachusetts and Ireland. When completed by the end of fiscal year 2006, the consolidation is estimated to result in savings of roughly $45 million per year.

This transfer will result in about $50 million of charges over the course of the next 12 months. About $23 million of these charges are for employee-related costs, of which some $20 million will be recorded in the fourth quarter. An additional $22 million will be recorded as a noncash charge for accelerated depreciation and charged to manufacturing expense during fiscal 2006.

The remaining costs, which include cleanup and lease termination costs, will be charged to expense as they are incurred during fiscal 2006. As a result, the company plans to take charges of roughly $20 million in the fourth quarter of fiscal 2005, about $6 million in each of the first, second and third quarters of fiscal 2006, and about $12 million in the fourth quarter of fiscal 2006.

In addition, ADI's board decided to reduce the dilution, net of estimated cancellations, related to the company's stock-based compensation programs to about 2.3% of outstanding shares for fiscal 2006. ADI granted stock options, net of actual cancellations by employees, equal to about 2.8% of shares outstanding in fiscal 2005 and 3% of shares outstanding in fiscal 2004.

The company also accelerated the vesting of certain existing "out-of-the-money" stock options that have exercise prices per share of $40 or higher and were granted to employees, excluding corporate officers and directors, beginning in 2001. Options to purchase some 18 million shares of ADI stock became exercisable Thursday as a result of this acceleration, and are "significantly" out of the money.

With its adoption of FASB Rule 123, ADI said the roughly $188 million of future expense associated with these options would have been "disproportionately high compared to the economic value of the options."