Analog Devices Inc. Earnings Cheat Sheet: Margins Shrink on Revenue Declines, Net Income Falls

S&P 500 (NYSE:SPY) component Analog Devices Inc. (NYSE:ADI) reported its results for the fourth quarter. Analog Devices designs, manufactures, and markets analog, mixed-signal, and digital signal processing integrated circuits used in industrial, communication, computer, and consumer applications.

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Analog Devices Earnings Cheat Sheet for the Fourth Quarter

Results: Net income for the semiconductor company fell to $183.5 million (60 cents per share) vs. $225 million (73 cents per share) a year earlier. This is a decline of 18.4% from the year earlier quarter.

Revenue: Fell 7% to $716 million from the year earlier quarter.

Actual vs. Wall St. Expectations: ADI fell short of the mean analyst estimate of 63 cents per share. Analysts were expecting revenue of $730 million.

Quoting Management: “We are very pleased with our fiscal year 2011 performance as ADI delivered record annual revenue and profitability, with revenue of approximately $3 billion, operating profit of approximately $1.1 billion, or 35.8% of revenue, and diluted EPS from continuing operations of $2.79. In addition, we generated strong free cash flow of $778 million, or 26% of revenue,” said Jerald G. Fishman, President and CEO. “In the fourth quarter, our results declined, consistent with a general slowdown in the semiconductor industry, particularly in the industrial and communications markets. Nevertheless, during this period, the consumer end market showed seasonal growth and the automotive sector continued to be strong. During the fourth quarter, we also reduced production levels, which reduced both our internal and channel inventories despite lower revenue, and resulted in lower gross margins. In addition, we took steps to reduce discretionary spending, allowing us to produce strong profitability while continuing to invest in our key strategic programs.”

Key Stats:

Gross margins fell 2.7 percentage points to 64.3%. The contraction appeared to be driven by falling revenue, as the figure fell 7% from the year earlier while costs rose 0.7%.

Last quarter’s profit decrease breaks a streak of four consecutive quarters of year-over-year profit increases. In the third quarter, net income rose 10.2% from the year earlier, while the figure increased 44.7% in the second quarter, 84.4% in the first quarter and more than twofold in the fourth quarter of the last fiscal year.

A year-over-year revenue decrease last quarter snaps a streak of four consecutive quarters of revenue increases. The best quarter in that span was the fourth quarter of the last fiscal year, which saw revenue rise 34.7%.

The company has now fallen short of estimates in the last two quarters. In the third quarter, it missed expectations by 2 cents with net income of 71 cents versus a mean estimate of net income of 73 cents per share.

Looking Forward: Expectations for the company’s next quarter results are lower than they have been. Over the past sixty days, the average estimate for first quarter of the next fiscal year has fallen from 62 cents per share to 59 cents. Over the past sixty days, the average estimate for the fiscal year has reached $2.77 abs per share, a decline from $2.78.

Competitors to Watch: Texas Instruments Inc. (NYSE:TXN), National Semicond. Corp. (NYSE:NSM), Intersil Corporation (NASDAQ:ISIL), Linear Technology Corp. (NASDAQ:LLTC), Maxim Integrated Products Inc. (NASDAQ:MXIM), ON Semiconductor Corp. (NASDAQ:ONNN), Silicon Laboratories (NASDAQ:SLAB), Cirrus Logic, Inc. (NASDAQ:CRUS), Broadcom Corporation (NASDAQ:BRCM), and Micrel, Incorporated (NASDAQ:MCRL).

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(Company fundamentals provided by Xignite Financials. Earnings estimates provided by Zacks)