Analog Devices’ (ADI) Broad-Based Strength In Q3 Is Overshadowed By Management’s Cautious Commentary
2:50 pm Wednesday, August 17th, 2022
Analog Devices (ADI) powers down despite posting beats on its top and bottom lines in Q3 (Jul). The semiconductor manufacturer, specializing in analog, mixed-signal, and digital signal processing, posted broad-based growth despite a tricky macroeconomic environment, with meaningful strength in its Industrial and Automotive segments, mirroring recent results from Texas Instruments (TXN) and Qorvo (QRVO).
However, management’s color on the state of the economy was not exactly cheerful, noting that economic conditions are starting to ding demand as orders slowed late in Q3 and cancellations increased slightly. For example, even though ADI’s backlog increased to a new record in Q3, stretching well into mid-2023, its book-to-bill fell sequentially. The volatile and uncertain environment shows up in the company’s Q4 (Oct) guidance, which was just in-line with consensus despite the outperformance in Q3.
Adjusted EPS and revenue growth soared by 41.3% and 76.8% yr/yr, respectively, as operating margins expanded by 650 bps yr/yr to 50.1%, and each segment saw growth of at least 55%.
Meanwhile, emulating robust figures from industry peers, Industrial and Automotive sales were exceptional, growing 55% and 127% in Q3. The more than doubling of revenue in Automotive sales was primarily due to a better mix of higher-content premium vehicles.
ADI’s final segment, Communications, grew 69% yr/yr, driven by wireless and wireline sales. Demand continued to accelerate for ADI’s optical and power portfolios as telecoms and hyperscalers poured capital into meeting an ongoing need for data.
The main takeaway in Q3 is that ADI proved again to be a powerhouse, posting considerable growth across each of its segments, fueled by its excellent product and customer diversification. However, investors are not showing their excitement for ADI’s consistency but instead zeroing in on management’s commentary, which turned significantly more cautious in Q3 compared to Q2 (Apr). Still, ADI’s portfolio stacks up nicely against current economic headwinds. The company also remains confident in achieving its annualized long-term revenue target of +7-10%.
