Solid Q3 Results From Analog Devices Paired With Positive Q4 Guidance

Analog Devices, Inc. ADI reported its fiscal Q3:16 results, with 6 percent revenue growth, driven by slower industrial and automotive trends being offset by robust consumer and communications demand.

Argus’ Jim Kelleher reiterated a Buy rating on the company, with a price target of $73.

Positive Guidance

“The company provided positive guidance for the fourth quarter, which should be led by increased consumer momentum as the iPhone 7 reaches the market,” Kelleher mentioned.

Analog Devices guided to Q4:16 revenue of $940 million at the midpoint of the range, implying a 4 percent year-on-year decline.

“Although Consumer should grow sequentially, we look for it to be down year-over-year from the launch quarter for the iPhone 6S and 6S Plus, which were the first Apple products to use ADI’s force-touch controller,” the analyst stated.

The fiscal Q4 will include only a few days of Apple Inc. AAPL iPhone 7 sales, although the analyst expects the Consumer segment to continue to accelerate well into fiscal 2017, as the iPhone 7 ramps.

“ADI is benefiting from overall growth in consumer revenue, smoothed across the length of the iPhone product cycle,” Kelleher noted.

The Linear Acquisition

The company has announced an agreement to acquire Linear Technology Corporation LLTC on July 26.

Kelleher believes that this acquisition would bring Analog Devices to the #2 position in terms of market share in analog chips.

“This accretive deal, which marries complementary rather than overlapping product lines, should boost ADI’s margins and cash flow,” the analyst added.

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