Analog Devices Guides Lower

An expected late-quarter pickup in demand did not materialize.
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Analog Devices

(ADI) - Get Report

said Thursday it expects fourth-quarter results to fall below its earlier guidance, echoing a familiar refrain among chipmakers that sales failed to pick up at the end of the quarter.

But the stock shrugged off the warning amid a mildly positive day on the

Nasdaq

to climb $1.32, or 3.5%, to $39.58 in recent trading.

The Norwood, Mass.-based analog semiconductor company said it expects sales in the range of $630 million to $640 million for the quarter ending Oct. 30, down 10% to 12% from the prior quarter.

In August, the company had forecast sales to be about flat with the prior quarter's level of $718 million.

The revised earnings per share outlook is now 33 cents to 35 cents. Previously, ADI had guided for earnings to be even with the prior quarter's level of 43 cents.

Analysts were looking for ADI to report 42 cents a share in earnings on $712 million in revenue.

"August was weak as expected, but the pickup we hoped would occur in September and accelerate in October did not materialize," explained Chief Executive Officer Jerald Fishman in a release. "As a result, we have lowered our revenue outlook."

On a geographic basis, most of the weakness suffered by ADI occurred in Southeast Asia and Japan. By end market, demand was softer than expected in wireless handsets, wireless infrastructure, semiconductor capital equipment and, to a lesser degree, in consumer products, the company said.

ADI also said that in China, an inventory buildup in handsets combined with a government-engineered credit squeeze had a "considerable" impact on sales. But it added in a release that "feedback from customers in China indicates inventory levels are low and government constraints are likely to end later this year or early next year," factors that could signal better growth prospects ahead.

In the meantime, Fishman said ADI sees "mixed signals for the first fiscal quarter. On the positive side, ADI has experienced more volatility in our order patterns than our customers have seen in orders from their own end customers. This tells us that most of the volatility is related to the supply chain, and only a small fraction is related to long-term end-market weaknesses."

He said customers are reporting that their business remains healthy, with "inventory in reasonably good shape."

Also, though cancellations ran higher than expected early in the quarter, they have declined to more typical levels over the past month or six weeks.

One point of concern, Fishman added, is that ADI's backlog of orders has fallen below the levels of the beginning of the quarter. "Customers are waiting until the last minute to place orders given their cautionary stance and ADI's short lead times," he said.

ADI will report earnings on Nov. 23, when it will issue guidance for the first quarter of fiscal year 2005, which ends Jan. 29.