Apple Weakness Is Good For...Analog Devices Investors?

• Analog Devices, Inc. ADI shares are down 15 percent since November 16.
• Credit Suisse’s John W. Pitzer maintained an Outperform rating for the company, with a price target of $72.
• Analog Devices has greater vulnerability that other Semi companies in Apple’s supply chain, Pitzer stated.

Analog Devices is scheduled to report its F1Q16 results on February 17. Analyst John Pitzer expects the company to report its revenues and EPS in-line with the Credit Suisse and Street estimated. Analog Devices had reduced its F1Q16 revenue guidance from $830m to $755m, reflecting a $75m shortfall due to weakness in demand related to Apple Inc. AAPL.

Analog Devices is likely to guide to April quarter revenues and EPS marginally short of the current Street expectations, Pitzer said. He mentioned the reasons for the shortfall as:

1. Decline in Apple revenues from $200 mm in the October quarter to $50 mm in the January quarter
2. Sequential growth being about 100 bps below seasonal, which is in-line with peers
3. April quarter y/y decline ex-Apple, about in-line with peers down 3 percent sequentially

Pitzer pointed out that Analog Devices was “more vulnerable” than other Semi companies in Apple’s supply chain, given its exposure to only the iPhone 6s and 6s Plus, for which demand trends have been “particularly weak” and the “likelihood that ADI has been over-shipping due to poor yields on Force-touch modules; our analysis takes over-shipping from 30-40% to 5%.”

“We would use ANY AAPL related weakness as a buying opportunity as we continue to see significant strategic value in ADI’s IP portfolio – the dominant player in A/D converters well positioned to see accelerating structural growth as I/A/I silicon content increases,” the analyst added.