Analog Devices (NASDAQ:ADI) Posts Better-Than-Expected Sales In Q4, Guides For Strong Sales Next Quarter

Radek Strnad /
2021/11/23 7:18 am EST

Manufacturer of analog chips, Analog Devices (NASDAQ:ADI) reported Q4 FY2021 results beating Wall St's expectations, with revenue up 53.2% year on year to $2.33 billion. Guidance for next quarter's revenue was $2.6 billion at the midpoint, 5.08% above the average of analyst estimates. Analog Devices made a GAAP profit of $75.6 million, down on its profit of $386.5 million, in the same quarter last year.

Is now the time to buy Analog Devices? Access our full analysis of the earnings results here, it's free.

Analog Devices (ADI) Q4 FY2021 Highlights:

  • Revenue: $2.33 billion vs analyst estimates of $2.3 billion (1.33% beat)
  • EPS (non-GAAP): $1.73 vs analyst estimates of $1.70 (1.9% beat)
  • Revenue guidance for Q1 2022 is $2.6 billion at the midpoint, above analyst estimates of $2.47 billion
  • Free cash flow of $809.9 million, up 48.9% from previous quarter
  • Inventory Days Outstanding: 90, down from 111 previous quarter
  • Gross Margin (GAAP): 47.9%, down from 67% same quarter last year as the company completed the acquisition of Maxim Integrated

“ADI delivered another quarter of record revenue and profits, marking a strong end to the fiscal year. Our Industrial and Automotive markets reached all-time highs and our Consumer business returned to solid growth in fiscal 2021,” said Vincent Roche, President and CEO, “As we enter fiscal 2022, our backlog and bookings remain robust, and we continue to invest in capacity, setting us up for continued growth in the years ahead.”

Founded by two MIT graduates, Ray Stata and Matthew Lorber in 1965, Analog Devices (NASDAQ:ADI) is one of the largest providers of high performance analog integrated circuits used mainly in industrial end markets, along with communications, autos, and consumer devices.

Sales Growth

Analog Devices's revenue growth over the last three years has been slow, averaging 6.64% annually. But as you can see below, last year has been stronger for the company, growing from quarterly revenue of $1.52 billion to $2.33 billion. Semiconductors are a cyclical industry and long-term investors should be prepared for periods of high growth, followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

Analog Devices Total Revenue

This was a fantastic quarter for Analog Devices with 53.2% revenue growth, beating analyst estimates. This marks 5 straight quarters of revenue growth, implying we are mid-cycle for Analog Devices, as a typical upcycle tends to last 8-10 quarters.

Analog Devices believes the growth is set to accelerate, and is guiding for revenue to grow 70.3% YoY next quarter, and Wall St analysts are estimating growth 43% over the next twelve months.

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Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) are an important metric for chipmakers, as it reflects the capital intensity of the business and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise the company may have to downsize production.

Analog Devices Inventory Days Outstanding

This quarter, Analog Devices’s inventory days came in at 90, 20 days below the five year average, showing no indication of an excessive inventory buildup at the moment.

Key Takeaways from Analog Devices's Q4 Results

With a market capitalization of $99.6 billion, more than $1.97 billion in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.

We were impressed by the exceptional revenue growth Analog Devices delivered this quarter. And we were also glad to see the inventory levels go down. On the other hand, it was less good to see the pretty significant deterioration in gross margin. Overall, we think this was a strong quarter, that should leave shareholders feeling very positive. The company is flat on the results and currently trades at $185.44 per share.

Should you invest in Analog Devices right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.