Apple Issues Lead Barclays To Downgrade Analog Devies

• Analog Devices, Inc. ADI shares have climbed 7 percent in the last three months, even after hitting a low of $53.47 on September 28.
• Barclays’ Blayne Curtis downgraded the rating on the company from Overweight to Equal-Weight, while reducing the price target from $70 to $60.
• An inventory correction could take place in the near term, since the company’s shipments to Apple Inc. AAPL have been much higher than expectations, Curtis said.

Analyst Blayne Curtis enumerated three reasons for the downgrade:

1. Increased risk of an inventory correction within the Force touch supply chain
2. Increased likelihood of Force touch not being included in 2016 iPads
3. Lower performance of non-Apple business

Shipments to Apple have been significantly higher than was estimated – actually reaching 13 percent in FY15, versus Barclay’s estimate of 8 percent. While Analog Devices has not indicated an ASP, Barclay’s estimate of about $2.50 points towards shipments being ahead of builds, which is also likely to decline.

Related Link: Apple iPhone Sales Face Slowdown Risk In March Quarter, Detwiler Fenton Warns

“Our concerns are compounded by initial yield issues for the Force module (causing ADI to ship extra units), multiple supply chain partners where inventory could collect, and the potential for lower AAPL builds,” Curtis said.

Low yields, coupled with the high cost of the Force module, are likely to result in an exclusion of Force touch for iPads offered in 2016. “This was the second leg of our thesis and we have now taken that out of our model,” the analyst added.

Analog Devices’ has witnessed a 6 percent year-over-year decline in its total revenue, excluding Apple and the HITT acquisition. This performance is worse than that delivered by the company’s peers, which have recorded close to flat total revenue.

The EPS estimate for CY16 has been reduced from $3.56 to $3.24.